Making Microfinance Easier

Entrepreneurs in the developing world are starting or expanding businesses using small loans from individuals they're paired with online

For 15 years, Angel Asenov Isaev, a 29-year-old Gypsy living in Sliven, Bulgaria, worked in a bike repair shop in the center of town, struggling to save enough capital to start his own shop. About five months ago, Isaev applied for a $250 loan from a local microfinance institution (MFI) called REDC Bulgaria.

He got the loan, opened the business, and is now working seven days a week to keep up with demand. But the money didn't come from Bulgaria: It came from America. That's because REDC had partnered with a U.S.-based Web site,, which pairs individuals with a few dollars to spare with entrepreneurs in the developing world (see, 7/31/06, "A Little Money Goes a Long Way").

Here's how it works: Kiva uses social networking tools to allow partner MFIs like REDC to upload profiles and photos of people who need capital to start or expand their businesses. Then, individual users, mostly from the U.S. so far, can choose a partner and grant a loan to that person. The borrower pays back the loan in increments, and often keeps a journal on their progress, which is updated on the site every few weeks.

Through its partnership with PayPal, grants loans with very low or no interest, since there's no processing fee for each payment. In the five months since its launch, its borrowers have kept their part of the agreement, with no defaults reported so far. has processed $200,000 in loans, disbursed among 450 entrepreneurs, from the Gaza Strip to Samoa.

One of Kiva's partner organizations is CREDIT MFI based in Phnom Penh, Cambodia. Emmanuel Aris, the Kiva project coordinator there, has been operating the pilot program for five months. Through funds secured through Kiva users, Aris has disbursed 35 loans, for a total of $25,000. He says Kiva's involvement has made loan officers follow up closely with borrowers, creating investment in long-term relationships.


Sourcing fee-free money over the Internet gives entrepreneurs more capital to run their business while avoiding the high interest payments common in the developing world. In some places, MFIs pay 18% to a local commercial bank for their loan money, then turn around and lend it to the customer at a 35% interest rate, says Premal Shah, Kiva's president and a former PayPal executive.

Some compare Kiva to sites like Craigslist, LinkedIn, and MySpace and see it primed for growth. Aris says the Web site is easy to use, even for the local Cambodian staff, who haven't had computers for long. And Jeremy Frazao, Kiva's director of technology, has recently completed a new Web application that will allow borrowers in Africa to update their online profile and journal through a cell phone.

Kiva's board is chock full of tech entrepreneurs with loads of Internet and Web 2.0 experience (see, 06/05/06, "Web 2.0 Has Corporate America Spinning"). New Kiva board member Reid Hoffman, CEO and co-founder of LinkedIn, says Kiva's got the right mix of elements to help it grow. Hoffman says he sees the same potential in Kiva that he saw in LinkedIn. "This has all the characteristics that could get into the hundreds of thousands or millions of users," he says.

Click here for the slide show with profiles of entrepreneurs who borrowed money through Kiva.

Before it's here, it's on the Bloomberg Terminal.