Founded in 2005 by Matt Flannery and Jessica Jackley, Kiva Microfunds (Kiva) is a non-profit organization whose mission is to connect people through lending to alleviate poverty. By providing affordable access to capital, people around the globe (even those in the most remote areas), have the capability to create better lives for themselves and their families.

I would like to first provide some background information on microfinancing. The history of microfinance can be tracked back to the middle of the 1800s. Theorist Lysander Spooner wrote about the benefits from small credits to entrepreneurs and farmers as a way of getting people out of poverty. Microfinance institutions, however, began arising in the 1970s when organizations, such as Grameen Bank of Bangladesh, began loaning small amounts of cash to the poorer people within their regions. The phenomenon expanded when people realized that the poor could be relied on to repay backs their loans. According to the World Bank, more than 7000 microfinance institutions serve more than 16 million people around the world today (World Bank).

Back to Kiva. Since its foundation, Kiva has lent 288 million dollars in loans to its 147 field partners  around the world in 61 different countries. Kiva’s loan process is rather simple:

  1. The lender selects what type of loan they want to make (which is then sent to Kiva)
  2. Kiva sends the money (via pay-pal) to a microfinance institution (close to where you want the money to go)
  3. The microfinance institution will deliver money to the borrower directly
  4. Borrower can then repay back his/her loan to microfinance institution
  5. Microfinance institution repays Kiva
  6. Money is then returned to the lender

Here is how Kiva’s lending works in practice: (The Pedro Story):

Despite being a non-profit institution, Kiva received criticism for its lack of transparency. Many lenders feel deceived that their money was not being sent to the borrower directly, but that borrowers had already received loans from microfinance institutions. David Roodman, a research fellow at the Center for Global Development, wrote a blog post about Kiva’s lack of transparency. The content of his blog was elaborated in a November 9th 2009 New York Times article. Essentially, the “person-to-person connections” described by Kiva were not necessarily true, which upset many of Kiva’s lenders.  Despite this backlash, there has been no negative impact on Kiva’s business. (I also would like to point out, as you saw above, that Kiva throughly explains its loan process).

After knowing all of the positive (and negative) aspects of Kiva, I believe that the organization has greatly benefited from globalization. Even though its main headquarters are located in San Francisco, the company (thanks to its nearly 700,000 lenders) has been able to improve the lives of millions of people on five continents around the world, thanks to globalization. Lenders in developed countries have been able to form indirect relationships with borrowers within developing countries that otherwise would not have been possible. Many complain that globalization has made our world smaller, but Kiva, on the other hand, uses it as a gateway to reach out and help the poor.


11 responses »

  1. Jordi says:

    You call it a “company.” Do you think that is accurate? Is there a better term?

    Also, how did the library sources help you? How did you hear about Kiva in the first place?

    • Kate says:

      Well, in terms of the library sources, I cheated. Kiva is one of the organization that I am going to be focusing on in my senior thesis so I had already done some background information. I tried to find more information using the library sources, but the most (relevant) information came from books through the inter-library loan system and I would have had to wait a few days for those sources. Or, maybe I was just looking at the “wrong” resources.

      In regards to the “company,” it may not have been the best term since it classifies itself as a non-profit, so “organization” would probably be the better choice

  2. Jordi says:

    The David Roodman post raises important issues. In a way, the y boil down to an ethical question. Is it right to perpetuate a partial fiction (direct lending to people) in the effort to do real, good work (microfinance).

    What do you think? Would it undercut their growth if people were more aware they were donating to the partners less than the actual people?

    • Kate says:

      Well, as the New York Times article concluded, it stated that Kiva’s growth had not been negatively impacted after Roodman pointed out that Kiva was not donating to the borrowers directly. However, I do believe that Kiva had lost several of its lenders after that incident due to the fact that they were mislead by the organization. You could consider it immoral that people were led to believe that they were participating in people-to-people connections.

      Personally, I would rather donate to an organization that gives my money directly to the borrowers, rather than one that provides it to a microfinance institution before giving it to borrowers.Many people could even ask: why even donate to Kiva when you can choose another organization that directly gives your money to people in need?

  3. scoutberger says:

    I read about Kiva in my capstone class last semester. What is very interesting to know is that a Bucknell alumni had a huge hand in creating Kiva. It was interesting to read Kate’s article because I never knew that there were any issues with transparency. I have only ever heard of the benefits and successes of Kiva. On one hand I understand and appreciate this criticism but on the other hand this is a non-profit organization that is making a tremendous impact and I have trouble criticizing a company such as that. I can respect that lenders want to be able to have that connection to the people that they loan money to. I understand why they might be frustrated that the borrowers are not receiving the money directly and that borrowers had already received loans from micro finance institutions. I feel like the people that lend money are lending money to better the world and do it to better the lives of the borrowers. I personally wouldn’t be bothered by the controversy of how the borrowers get the money. Kiva prides itself on the person-to-person contact. If there is a reason to be angry it would be the fact that Kiva is misrepresenting itself.

    At the end of the day I feel that Kiva is a company making a great impact for people in developing countries. It is an inspirational idea that gives people the ability to create their own business plans and get their feet under them while giving lenders the opportunity to feel like they are involved and bettering the lives of others.

    • Jordi says:

      We should be as willling to be skeptical of any NGO because they depend on the goodwill of the label. There are scandals and conflicts of interest in that sector too.

    • Hannah says:

      I was also in Scout’s capstone class last semester where talked about Kiva, and I also had no idea that there were transparency issues. Personally, I don’t care even if there is a lack of transparency. There’s going to be a lack of transparency in a lot of companies, but I would rather have there be less transparency in a non-profit organization that is promoting a good cause than another Wall Street Bank. I think it is better than you actually get to choose what borrower you would like to give your money to because it seems more personal and heartfelt. Even if there are disagreements as to whether or not this actually happens, those who need the loan still get the loan, so who really cares? Your money is still going to a good cause.

  4. Sarah says:

    Wasn’t Kiva founded by Bucknell alumni? My dad is actually a Kiva lender and as far as I know loves the organization and the work it does. He occasionally shares stores of what the money is being used for and the timeline of when he received money back from his loans. But he has never mentioned any issues with transparency. On the contrary I always got the impression that he was always amazed by the amount of information he was given about what his loaned money was being used for.

    I think the whole company and its idea are very creative and cool. Lenders pretty much only have to donate once and than that money is used over and over again to fund different projects. This company and the whole premise of their idea have definitely benefited from globalization. They are helping connect people with the ability to help, to people who are less fortunate and need help; this would have never been possible without globalization. Now instead of people just helping out individuals in their own community they can aid others all over the world almost instantly with the clicks of a few buttons.

  5. brookeparker16 says:

    I’ve been a part of the Kiva community since the end my senior year in high school after my hippie sister suggested it to me. I am a big fan of Kiva but I have not heard about these transparency issues yet. I get why it would maybe annoy people but it personally does not bother me. I have had only great experiences with Kiva. Only one time did someone that I loaned money to default on part of their loan. Every other time I have received my entire loan back. It truly is the gift that keeps on giving. I usually try to loan to people in the Dominican Republic because I spent two summer volunteering there (which is going to be the topic of my blog). It is great to be able to do something that is so helpful for people but at the same time it isn’t just a hand out. Kiva encourages people to be responsible with their spending because they have to pay it back. Globalization can truly help people make an impact all over the world.

  6. Alex Lin says:

    I am just wondering, how does Kiva make money? I understand it is a non-profit organization but it still needs capital to pay employees, keep their website running, and just general operation costs. Does Kiva charge the MFIs some interest to keep their organization running?

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