Kiva Now Allows You to Invest in US Small Businesses

Written by Steven Walling / June 10, 2009 11:00 AM / 6 Comments

Today, the much-lauded microlender Kiva announced it will begin a pilot program of loans to U.S. small enterprise. Kiva began in Africa, and after four years has since expanded to 44 countries, mostly in the developing world.

The test will start with 45 U.S. businesses, ranging from baked goods deliveries to child care and taxi drivers. For now, the loans are limited to New York and California, though Kiva is actively seeking new Field Partners to move in to more regions in the U.S.

The Kiva platform works basically as a middle man, providing profiles of entrepreneurs for lenders to choose from, collecting the funds to be distributed through Kiva partners, and giving the capital back to lenders (either to re-lend, keep, or donate to Kiva) once a loan has been repaid. To date, more than $75 million for entrepreneurs in the developing world has been raised through the site.

The Pilot Program

Kiva will work with two initial field partners for its U.S. loans: ACCION USA, a non-profit microfinance institute, and Opportunity Fund, a community development fund which works in California. A handful of the more popular entrepreneurs - such as in catering, child or elder care, and retail - have already been fully-funded or near to it.

Is Giving in the U.S. As Good?

Poverty is poverty.

There's no doubt that even prior to the credit crisis, U.S. small business had trouble getting capital. But the cold fact remains that $1,000 provides more leverage to a small business in Ghana than it does to one in Palo Alto. Microfinance for entrepreneurs in highly-developed countries may simply not be the most efficient use of funds to help small business.

Another facet to the new Kiva program is the potential for lenders from other countries to finance U.S small business. The vision Kiva sees, with a "Guatemalan woman making a loan to an entrepreneur in Detroit", might border on absurdity in the eyes of some.

Admittedly though, lending through Kiva doesn't revolve around economic efficiency. The incentive for lenders is one of emotion, of choosing the entrepreneur that you feel most needs a loan, and then seeing your investment have a positive effect. With that notion in mind, expanding Kiva in to the U.S. during an economic crisis might just be a brilliant move.

Comments

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Kiva is using the knowledge gained throughout this downturn that the economies of the world are dependent upon one another now more than ever, and increasingly so. Investments of this type will have a multiplier effect eventually felt around the world, no matter where the initial loan takes place. Microfinance is not just for investors looking to boost their philanthropic self esteem. It can also just make good business sense. Kudos Kiva!

Posted by: Heather P. | June 10, 2009 12:20 PM

There's also: https://thechangexchange.org/ a microloan site that lends all over the world, including its hometown, Portland, OR

Posted by: Klintron | June 10, 2009 12:24 PM

Is giving in the U.S. as good? I can’t help but stand up tall and shout “yes” at the top of my lungs. As a staff member at Kiva field partner ACCION USA, I witness first hand every day the positive impact that microloans have not only on the lives of borrowers, but on our economy as a whole.

It’s true that it’s hard to stretch $1,000 far in a formal economy. But whether a microloan is for $1,000 or $10,000 isn’t important—it’s the trickle down effect that the infusion of capital has.

If I told you that each microloan provided in the U.S. creates nearly two jobs, contributes to an 18% increase in the household income of the borrower, and gives a valuable push towards the financial mainstream, would you still ask the same question?

The fact is, microfinance is a powerful economic development tool in the U.S.—and has been for nearly 20 years.

Posted by: Laura Kozien | June 10, 2009 2:41 PM

The title of this article is misleading. Investing is very different from lending. With exception of a more structure transaction, no equity is involved in lending.

Posted by: danny | June 11, 2009 7:59 AM

There is no doubt that leverage is better in Ghana than in Palo Alto. It would be far from efficient for me to spend my time arguing with that. But efficiency is an interesting concept. Think about this: The US Department of Labor states that it costs them $35k to create a job in the US. Each microloan generates nearly 2. Our loans average $7K. Talk about efficacy. The Treasury Department has certified ACCION USA and hundreds of others as Community Development Financial Institutions. It is widely accepted that $1 gets leveraged 22 or more times by US CDFIs. Pretty efficient. I could go on, but you know what's going to follow, it wouldn't be efficient.

One day on Kiva has already provided us with ample evidence that people don't see this as an either or. Ghana or Palo Alto or Queens or Manhattan. The US-based loans are funding pretty quickly and the dollars repaid will fund another entrepreneur, and then another, and will help families secure education for their children, and break cycle of poverty - nothing does that as efficiently as an education.

Yes, Americans are moved today by the state of our economy. They will continue to be moved by the fact that a small loan will change lives, families and neighborhoods. Let the quantitative build up lead to a qualitative change: that's efficiency of another sort.

Posted by: Gina Harman | June 11, 2009 10:31 AM