Microfinance in U.S. Helps Small Businesses Grow: Kiva Launches Online Microlending to Borrowers in the United States

Investors who log on to Kiva will see profiles of a Russian dance teacher in San Jose, California who wants to open her own studio and a New York taxi driver ready to invest in a newer taxi, next to a father of five in Azerbaijan hoping to buy two calves to supplement his income. Microloans are aimed at helping people raise themselves out of poverty. Muhammad Yunus won the Nobel Peace Prize in 2006 for developing the concept of microcredit. The loans are usually a few thousand dollars — in developing countries even a few hundred dollars will suffice — and designed for people who can't get traditional bank loans.

Kiva Partners with Non-Profits to Bring Microfinance to the U.S.

Among the first American entrepreneurs waiting for loans are: two men who want to grow their environmentally sensitive landscaping business, a Filipino immigrant offering homecare for the elderly, and a Mexican lady with a fruit juice bar and cafe. In order to serve clients in the U.S., Kiva partnered with two organizations that have successfully practiced microlending for years. One is Boston-based Accion USA, a national organization that provides loans to small business owners who don't qualify for bank loans, the other is San Jose-based Opportunity Fund, a community development institution that makes small-business loans in the San Francisco Bay area.

Kiva's Platform Looks Like Social Networking Site

While charity contributions have declined during the economic crisis, microfinance continues to grow. Visitors to the Kiva website have made loans totaling more than 75-million in less than four years. Individual contributions start at $25. The Kiva site is transparent and facilitates one-on-one connections that appeal to the Facebook generation. The individuals applying for loans are real people waiting for socially-minded lenders to help them. Their profiles include photos, business updates and loan repayment info. Investors immediately see who gave how much to whom as lenders' photos show up on the borrowers' profile.

Microfinance Grows Into a Respected Investment Tool

The need for loans has climbed dramatically with the economic downturn, as banks tighten their lending standards and more newly unemployed people look to entrepreneurship for a living. At a Microfinance California event at Stanford University in May 2009 presenters agreed, that microloans are a financial ray of hope. Microlending institutions like Opportunity Fund also provide financial counseling and business advice, desperately needed by families who have no banking experience.

"Financial education holds the power to transform the cycle of poverty into a cycle of prosperity," said Emmett Carson, CEO of the Silicon Valley Community Foundation at the event. (SFGate, 5/29/09)

Aug 10, 2009 1:13 PM

Guest :

Christine,

Thank you for this wonderful review of Kiva’s new domestic microlending program. I work at ACCION USA, one of the two Kiva field partners operating in the States, and it’s exciting to hear so much discussion about US microloans. Kiva has been receiving a good amount of criticism lately for their decision to begin facilitating loans to local entrepreneurs. We feel that a majority of this criticism stems from a misunderstanding of domestic microfinance—its mission and its mechanisms. AUSA believes passionately in the value of small business and accessible credit, having offered domestic microloans now for over a decade. With the ability to enrich communities, empower individuals, and increase economic opportunities, small businesses constitute a vital sector of our economy.

By permitting loans to US microentrepreneurs, Kiva has allowed AUSA to provide access to credit to many individuals who would have otherwise been without financial resources. As Kiva wisely acknowledges, poverty is relative, and income deprivation is only one component. Credit has always been scarce for small business owners; in the heat of the financial crisis, it has all but evaporated. Many of our borrowers have suffered from medical debt or labored in a difficult job with little potential for advancement. The chance to own a prosperous small business is a massive opportunity for them. AUSA also offers clients a wealth of financial education resources, assisting individuals better manage their personal and business finances.

If you’re curious about the specifics of Kiva’s domestic lending program, please visit their <a href="www.accionusa.org/blog">blog</a>. To learn more about ACCION USA’s operations, check out our <a href="http://www.accionusa.org/home/support-u.s.-microfinance/about-ac cion-usa/annual-reports--financial-information.aspx">online resources</a> documenting <a href="http://www.accionusa.org/home/support-u.s.-microfinance/learn-a bout-u.s.-microfinance/publications.aspx/d=55/title=MicroTest_2008_Report_S ummary">the impact</a> of our loans. Also please feel free to follow our <a href="http://www.accionusa.org/blog">blog</a> and our twitter account (@ACCION_USA)!