In my experience, the average person is compassionate and believes that all lives have equal value. That said, the images and statistics surrounding issues like global poverty can create a sense of hopelessness, leading to inaction. Psychologists call this “compassion collapse” because the magnitude of the problem causes many of us to turn away, ignore it, and generally disengage. In recent years, social entrepreneurs have launched several online philanthropy platforms that seek to mitigate compassion collapse by engaging large numbers of donors in interactive venues where they can see how their help changes lives.
One such platform is Kiva, the organization that I run. Kiva’s mission is to alleviate poverty by connecting people through lending. It hasn’t been easy. Each day, we aim to create meaningful connections at “human scale.” To paraphrase Mother Teresa, “If I see the masses I will never act, but if I look at the one I will.” To create these personal connections, we leverage Internet and mobile technologies plus a network of field partners in 72 countries who do the hard work of reaching those on the other side of the digital and financial divide. This year, $120 million will be lent on Kiva.org in $25 increments, one person at a time.
We seek to reframe the working poor as dignified equals—as active contributors to their communities whose stories reflect our own. Reading through the stories of hardworking entrepreneurs who seek a small loan to capitalize a practical business opportunity makes anyone with $25 feel like they have the power to create meaningful, sustainable change. And because we are all products of others believing in us, it seems natural, almost irresistible, to believe in someone else’s potential when the opportunity arises.
A unique aspect of the Kiva model is that we facilitate loans, not donations. Kiva lenders put money into our system, lend it out, and get repaid fully 99 percent of the time, albeit without interest. Most Kiva lenders recycle their original principal into the hands of new entrepreneurs worldwide, and eventually put more money into the system.
So often in philanthropy, feedback loops are weak. What happened to the money that I donated to the homeless man at the end of my block? What about the check I wrote to the major nongovernmental organization? Did it create sustainable change? How was it spent? Should I give next time?
The average Kiva loan is $400, and it gets fulfilled by multiple Kiva lenders—$25 at a time—in fewer than five days on average. The fact that Kiva loans get fulfilled in less than a week creates a short feedback loop. When Kiva lenders start getting monthly e-mails notifying them of small repayments, they often tell us how much they value knowing that something went right halfway around the world with the entrepreneur they picked. At Kiva, you only get repaid if the entrepreneur you picked actually repays their loan. This creates a true one-to-one connection, a prolonged attention to someone else around the world, and a mutual interest in the entrepreneur’s success.
Joining the party
At Kiva we’ve learned that we can create more social good when we make lending enjoyable. For example, the site allows you to create your own “lending team,” essentially an affinity group (for example, Stanford alumni) that magnifies the impact of the individuals involved. Over 20,000 lending teams have been created, with the Kiva Atheist and Kiva Christian teams currently competing for the top spot on the leaderboard. It’s so much fun to watch teams playfully compete with one another or support their own team members via the team message boards.
Kiva has now spread internationally, to the point where one in three Kiva lenders are now based outside the United States. We recently launched a lending program that supports underserved entrepreneurs in the United States. We’ve been delighted to see Kiva lenders from Kenya and Cambodia providing capital to low-income entrepreneurs in San Francisco. Lines are blurring fast, and the Web will help accelerate hope and action via a larger sense of us and a smaller sense of them.
The wisdom and chaos of the crowd
One concern I’ve heard about online giving marketplaces like Kiva, GlobalGiving, and DonorsChoose is that the general public may not be in a position to make good decisions about philanthropy. Judging from the Kiva platform, the crowd appears to be wiser than skeptics might assume. For example, gender and country poverty levels appear to be the two most significant determinants, statistically, of who gets funded on our site. Women tend to get funded almost twice as fast as men. And the poorer the country (measured by GDP per capita), the quicker the funding rate. This crowd-based decision making maps well to the impact research. For example, research shows that women are much more likely than men to spend increases in income on their families.
Yet the crowd can generate chaos as well as wisdom. Take the controversial issue of interest rates and profitability in microfinance. Kiva doesn’t charge interest on the microloans that we facilitate through our field partners, which are microfinance institutions in different countries. However, the microfinance institutions themselves do charge interest rates that average about 35 percent. That sounds shockingly high to Western ears and has caused a great deal of frustration among Kiva lenders.
We try to educate our lenders by explaining that, on average, our field partners are earning negative return on assets, a measure of profitability. This means that they are not yet covering their own cost of reaching the poor with microfinance and other services. And we frequently remind our lenders that Kiva itself doesn’t charge anything for the services that we provide. (Like Wikipedia, we subsist on donations from the Internet community.)
Experiments in trust
It all comes down to reducing friction in the credit system by increasing the level of trust among our global community of borrowers and lenders. Our new Kiva Zip program (KivaZip.org) is an effort to advance this mission. Kiva Zip is a pilot to see if a) new payment technologies and b) trust networks can reach more people at lower cost versus microfinance today, while creating more global connectedness.
The bulk of microfinance underwriting costs are driven by the need for in-person visits by loan officers. In many countries, loan officers must travel long distances over dirt roads to assess the credit-worthiness of their clients. After extending credit, the loan officer must travel weekly or monthly to collect loan payments. This is a far cry from the efficiency of credit scoring, credit approval, and automated payment systems here in the U.S.
We hope that the combination of trust-based social networks and efficient online payment will dramatically lower underwriting costs in markets that lack modern credit sectors. Using Kiva Zip, for example, a church pastor in Kenya can now vouch for a member of his congregation who needs a loan. This endorsement will qualify the borrower to receive a zero percent interest loan via their M-Pesa mobile payment account. Our system then sends automated SMS reminders and enables repayments via mobile phone.
If our hypothetical borrower repays Kiva lenders, her trust score will go up. This will qualify her to take out a larger loan at low cost. Even better, Kiva Zip borrowers with high trust scores can endorse other members of their communities for low-cost, crowdfunded loans. This promotes a peer-to-peer spread of the concept that should mitigate risk and keep borrowing costs low.
Amazon founder Jeff Bezos likes to remind us that it’s still “Day One” on the Internet. In some ways, the Kiva Zip model brings us back to Kiva’s founding vision of alleviating poverty by connecting people around the core idea of character-based lending. We are in the early chapters of using technology to connect people in new ways that express our fundamentally good nature as human beings.