What's the point of Kiva?

By Adam Kemmis Betty, Kiva Fellow in Bolivia

CGAP’s annual Microfinance Funder Survey shows us that Kiva’s impact in financial terms upon the microfinance industry is - to put it politely - tiny. In fact, the combined total of institutional and individual investors, including pension funds, commercial banks and online lending platforms such as Kiva, only amounted to 7% of total funding for the microfinance industry in 2008. The big players are still development banks (such as the World Bank) and development agencies (such as USAID). As a Kiva lender, I found this rather disheartening.

So what’s the point? One view is that every dollar still counts. Particularly since the global financial crisis has restricted the flow of credit to microfinance institutions around the world, another dollar of available financing means another dollar lent (this argument was less valid in 2007 and earlier, when cheap credit was readily available). What’s more, although still relatively small, Kiva is growing fast (see chart), even relative to the industry: it’s not inconceivable that ten years down the line online lending will make up a significant slice of the microfinance pie.

But there are also a couple of reasons why Kiva punches above its weight. On the borrowing side, Kiva can have a substantial impact on individual microfinance institutions (MFIs). The 0% interest rate at which Kiva lends can help an MFI manage its costs, perhaps enabling it to reach borrower segments (such as rural borrowers) that it was previously unable to cover. Kiva is more risk tolerant than larger international financing agencies, and can serve as a stepping stone for an MFI seeking broader access to funds: a risk review from Kiva may give confidence to a larger investor. Kiva can also serve to publicise the work that the MFI does, which in turn might help them find additional financing.

On the lending side, Kiva raises awareness of microfinance around the world (but most notably in the US and Canada). Kiva estimated in 2008 that 36% of lenders had not heard of microfinance prior to using the site, and that the majority of other lenders had little prior knowledge of the sector. Through Kiva, lenders learn not only about microfinance but also about the poverty that it seeks to tackle and the countries where it’s at work. Building a constituency in North America educated in microfinance and international development issues could have big – although rather to measure – knock-on effects, particularly in terms of public policy.

So, we can all breathe a deep sigh of relief, safe in the knowledge that we’re changing the world after all. Well, discuss.

In the meantime, make a loan.