Kiva has been leading the way in philanthropic investment since 2005. Through microfinance and the crowdfunding of loans, this non-profit organisation has been connecting people across the globe through lending and borrowing, in a wider bid to ease poverty.

A new way to invest in the future

Kiva is a non-profit organisation based in San Francisco, with a field office in Nairobi, Kenya. The organisation brings together lenders and borrowers from around the world through both the internet and a global web of microfinance organisations. Kiva enables individuals to lend as little as US$25 to create opportunities for others around the world.

Kiva is funded through the support of lenders making optional donations, along with grants, corporate sponsorships and backing from foundations. Kiva guarantees that 100 per cent of every dollar goes directly towards crowdfunding loans for people in need.

Kiva’s goals is to “create a world where all people, even in the most remote areas of the globe, hold the power to create opportunity for themselves and others”. The organisation believes in providing “safe, affordable access to capital for those in need” to help people create better lives for themselves and their families. And Kiva also offers essential services to its borrowers such as health care, child vaccinations and financial literacy classes.

What is microfinance?

Microfinance is a term that describes financial services offered to low-income individuals, or to those who do not have access to typical banking services.

Some studies show that microfinance can play a role in the battle against poverty. But studies also acknowledge that microfinance is not always the appropriate method to address poverty, or the only tool for ending poverty.

Key benefits of microfinance include its sustainability – the profit made from providing services is reinvested to grant further loans – and that it helps people help themselves. Building income on an individual basis is likely to lead to further positive, long-term outcomes. More traditional support, such as one-off food or clothing packages, may only provide short-term relief.

How Kiva works

Kiva uses a simple three-stage process: ‘Choose a borrower, Make a loan, Get repaid’. And the cycle can repeat.

Choose a borrower

Potential lenders can read about borrowers from across the planet, from Paraguay to Rwanda. Borrowers have all been selected because they’re credit-worthy, actively contributing and have a positive impact in their community.

As part of Kiva’s risk and due diligence processes, borrowers are checked and verified by a team of 304 field partners across 83 countries. These field partners make up Kiva’s global network of microfinance organisations. They are responsible for screening and giving borrowers the Kiva tick of approval, posting loan requests, disbursing loans and collecting repayments, and otherwise administering Kiva loans.

Make a loan

By making a loan, lenders support an entrepreneur’s dream, empower their business and contribute to their livelihood. Loans can go towards starting or growing a business, repairing a school, building a house or supporting the switch to clean energy. Kiva pulls together all the smaller loans and crowdfunds loans to borrowers.

By providing field partners with capital at zero per cent interest, the goal is to help these microfinance organisations increase their lending programmes. Eighty per cent of field partners are non-profit organisations that simply charge interest to cover their overheads.

Get repaid

Lenders receive progress updates on the positive impact they’ve helped create and they receive loan repayments. Field partners and volunteers edit and translate borrowers’ stories, with photographs, and post these to the Kiva website.

The cycle of help continues

Lenders are encouraged to use their repayments to reinvest and support another borrower, ever increasing their circle of impact.

Ten years of helping others help themselves Kiva was founded in 2005 and the results are impressive.

Total loans: US$13,647,450

Total lenders: 1,387,555

Repayment rate: 98.4%

Default rate: 1.3%

Currency exchange loss rate: 0.44%

Refund rate: 0.6%

(As at 11 February 2016.)

Lending has risks

Kiva is clear about the risks involved in lending, as with any investment. Historical repayment rates do not, for example, guarantee future results. You may lose all or some of your money. Lenders need to find the option that best suits their individual needs, either in terms of the level of repayment risk or in the level of social return. As with any investment portfolio, Kiva also recommends that you diversify, reducing exposure to any one borrower, field partner or region of the world.

Along with the smaller risks that come from working with borrowers and field partners around the world, there are also macro-level risks to consider. These can include the economic and political situation in a country, foreign exchange risk, or natural disasters.

The gift of giving

As well as being a lender, you can gift a Kiva Card, giving someone else the chance to make a loan to a borrower who inspires them. When that loan is repaid, the person you’ve gifted to can lend those funds again and again to make an even bigger difference.

IN BRIEF

· Product: Philanthropic crowdfunding using global microfinance organisations to connect lenders and borrowers.

· Provider: Kiva www.kiva.org

· How it works: Kiva lets individuals lend as little as US$25 to help create an opportunity for someone else in need from another part of the world.

· What we like: The positive, potential impact of microfinance and the opportunity to help people to help themselves in the long term. We also like the high repayment rate and the ability to track progress online. A small amount of money, if repaid, can be used again and again, across many different projects in different parts of the globe.

· What we don’t like: Generally the risks involved in lending are similar to any investment. We do like, though, that small amounts can be invested in loans and portfolios can be diversified to reduce risk.

· Conclusion: Crowdfunding, lending or investing always has risks. But Kiva offers the opportunity to invest in someone’s life in a meaningful way, with a social return that in some cases could mean long-term change for borrowers.

First published 16 November, 2016

By Sue Lewis

The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.