Empowering Entrepreneurs Globally and Locally
Back in 2005 when Kiva was founded, we made our first loans in Uganda. Over the next few years, we expanded into more and more developing countries, and then in 2009, we were proud to launch Kiva in our home country – the United States. Although U.S. loans still represent less than 1% of the entrepreneurs we fund on Kiva, our lending in the U.S. has been increasing recently, thanks to the growth of the Kiva Zip program. Some Kiva lenders have expressed concerns that Kiva’s U.S. lending threatens to distract us from our mission “to connect people through lending to alleviate poverty”, but we are very excited about supporting entrepreneurship in the U.S. for a number of reasons.
1) Direct Poverty Alleviation
We believe that poverty exists here in the United States, as well as in the developing world, and we know that many of our U.S. borrowers themselves live below the poverty line.
According to the National Poverty Center, 15% of the U.S. population lives in poverty, including 16 million children. Few people who have spent time in rural Arkansas, inner city Detroit or the south side of Chicago would deny that real poverty exists here in the United States. And that poverty is deep-seated, and inter-generational. Statistically, unless we change the system, an African-American male born today has as much chance of going to prison, as of graduating from college. On the Kiva team, we do not believe that statistic is caused by “different cultural norms” or “bad decision making”. We believe it is caused by suffocating poverty. And we are on a mission to alleviate it.
Some of the loans that I am proudest of us having made over the last few years, have been to ex-offenders, the recently homeless, or immigrants with no money and no assets, but a vivid American dream. These borrowers have been marginalized by society, and rejected by every conventional lender whose door they have knocked on. To watch their collective realizations that not only can they now access a Kiva loan despite their damaged credit, and that not only will that loan be at 0% interest with no fees attached, but that they have been crowdfunded by a hundred generous lenders from around the world, who are willing to put $25 of trust in them, and who wish the best for them and their business – that is the purest, most beautiful vision of what the Kiva movement can and should be all about.
2) Community Development
Income inequality is indisputably on the rise in America. Over the last four decades, the average income of the poorest 20% of households increased by 7%, while the average income of the richest 5% of households grew by 61%. Between 2000 and 2011, the median wealth of the richest 20% of households increased from $569k to $631k, while the median wealth of the poorest 20% of households dropped from negative $900 to negative $6,000.
On the Kiva team, we believe that entrepreneurship can be a major bulwark against this creeping income inequality.
While working as a former corrections officer and gang prevention worker, Teresa Goines became aware of a great need: The youths in juvenile hall told her story after story of their need and want for a job, a sense of belonging and protection. Where they did not get this from their own families and community, they were able to find it in gangs and crime. So a few years ago, she opened Old Skool Café, a non-profit supper club in San Francisco’s Bayview district. The mission of Old Skool is to providing marketable employment skills in the restaurant industry to at-risk youth in the neighborhood. In 2012, she borrowed $5,000 on Kiva to hire a chef. Old Skool is currently the third highest-rated restaurant in San Francisco on Yelp.
Andrew Yang, the CEO of Venture For America, put it beautifully:
“That's the beauty of entrepreneurship: If a new company is formed, it hires people and creates jobs in its community. As it grows, people’s opportunities multiply and wages rise. Inequality diminishes because people get pulled into good jobs.
Today, two-thirds of new net jobs in the U.S. are being created by new firms that are less than five years old. If you want to ease income inequality, what you want are more new firms starting up and seeking employees.”
If Black America were a country, the median wealth of that country would be less than the median wealth of Brazil, Mexico or China. And the incarceration rate of that country would be fifteen times higher than the incarceration rate of the UK. In the face of such systemic challenges, we are proud that over half of our Kiva Zip loans have gone to ethnic minority entrepreneurs since we launched the program in late 2011.
Even where our borrowers are not themselves in poverty, as small business owners, they can create jobs, strengthen the fabric of their communities, and help stem the tide of rising income inequality that the United States has been witnessing over the last few decades.
3) Access to Capital
According to the FDIC, 17 million Americans are unbanked, and a further 51 million are underbanked. President Bill Clinton alluded to this when he launched Kiva City Little Rock in March 2013, and said “we have gotten ourselves in a situation now where the only people that can get real money are people that don’t need to borrow it”.
Every day, 8,000 small business loan applications are rejected by banks in America, and that situation is getting worse. Between 2000 and 2011, large business loans of over a million dollars increased by 36%, while micro business loans of under $100,000 declined by 33%. We suspect that this lack of access to capital is an important reason for the fact that over the last few years, the number of new businesses starting up in America has been less than the number of businesses closing down for the first time since records began.
This picture of small business loan capital access is even bleaker for minority entrepreneurs. CFED notes that African-American and Hispanic small business owners are three or four times more likely to get rejected for small business loans than their Caucasian counterparts.
In a recent survey of 175 Kiva Zip borrowers, over half of respondents that had applied for a loan with a non-profit microfinance institution before taking out their Kiva Zip loan had been rejected by that MFI. At Kiva, we are excited to expand and improve the financial options available to small business owners like these, who are often overlooked by conventional lenders who see small mom and pop shops as too risky to lend to, and too costly to serve.
We do not believe that Kiva’s lending in the U.S. and internationally is a zero-sum game; that more lending to U.S. small businesses on Kiva will result in less lending to small businesses in the developing world. Rather, we see very strong evidence that increasing our brand visibility, lender base, and loan volume in the U.S. will significantly increase Kiva’s long-term impact in the rest of the world.
The clearest example of this is seen in the concept of “borrower self-fundraising”. As we iterated on the Kiva Zip program over the last four years, we created a “Private Fundraising Period”, where U.S. borrowers were required to recruit a number of people from their friends and family network to lend to them, before we posted them to begin publicly fundraising on the Kiva website. Not only did this innovation allow us to make loans to small business owners that conventional financial underwriting would have condemned as too risky (due to a lack of credit history, cashflows or collateral); and not only did it increase our repayment by leveraging “social underwriting”; but it also enabled us to rapidly expand our lender base. In 2016, almost half of the new lenders participating in the Kiva movement will come from borrowers recruiting their own networks to lend to them. As these lenders are repaid by the borrowers that first invited them to Kiva, we hope that they will relend their repayments to support other entrepreneurs on Kiva – whether they be in the United States as well, or on the other side of the world in Uganda.
There are many other examples of how our U.S. lending program can cross-subsidize and catalyze our impact internationally. The Kiva Zip program has received significant coverage in the media over the last few years – in publications like FastCompany, TIME Magazine and the Wall Street Journal. The more positive brand impressions that Kiva receives as a result of our U.S. lending, the more people learn about Kiva, and might join our community as a lender. If a lender makes a $25 loan to a U.S. small business owner, they might donate an additional $2.50 to Kiva to contribute to our operating expenses. This $2.50 can be used to improve Kiva’s website, which will improve the experience for all lenders, not just lenders on U.S. loans. In March 2013, and again in December 2015, President Bill Clinton launched “Kiva Cities” at his Presidential Library in Little Rock, Arkansas, and in New York. We were incredibly honored to welcome President Clinton as a champion of Kiva. To receive the support of influential leaders like President Clinton, Senators Cory Booker and Mark Warner, or Mayors Tom Barrett, Greg Fisher and Libby Schaaf, gives all of us on the Kiva team a huge injection of inspiration, and significantly raises our credibility and profile externally.
For these reasons, and many others, we believe that increasing our impact in the United States (and, in the future, Canada, the UK, Sweden, Australia, and other developed countries) will result in us increasing our impact in the rest of the world, rather than detracting from it.
5) Personal Connections
Kiva’s mission is about poverty alleviation, but it is also about connecting people. One of my most magical personal moments as a Kiva employee was meeting one of our Kiva Zip borrowers in Nairobi who told me to “tell Anders I say hi”, referring to one of her lenders, who lived in Sweden. And yes, we are excited about the potential of Kiva’s technology platform to connect lenders and borrowers on different sides of the world…
…But at the same time, we have also seen that it can be even easier to cultivate these connections when the borrower and lender live in the same country, or even the same neighborhood. We have seen countless heart-warming examples of genuine, inter-personal connections on our U.S. loans over the last few years – of lenders connecting with a borrower on LinkedIn, clicking through to a borrower’s website and buying a pair of their flip flops, or visiting a borrower’s coffee shop and meeting in person.
Our highest vision for Kiva sees us strengthening our borrowers’ social capital, as well as expanding their access to financial capital. We dream of lenders becoming business advisors, brand ambassadors and customers for the borrowers they are supporting, as well as financial investors in their business. And we believe that, oftentimes, these personal connections can be most powerful and meaningful when the borrowers and lenders live in the same country.
6) Vision Statement
Kiva’s vision is as follows: “We envision a world where all people – even in the most remote areas of the globe – hold the power to create opportunity for themselves and others”.
I like many things about this vision statement. I like how it seeks a world where people are empowered to create opportunity for themselves, rather than relying on handouts; I like how it ends on a reciprocal note – implying that all people can be lenders as well as borrowers; and I like how it says “all people”, rather than “some people” or “poor people”.
At Kiva, we aspire to connect people, and create economic opportunities for hard-working small business owners – even in the most remote areas of the globe; and even in the United States.
Central to Kiva’s ethos is the principle of democracy. No longer is a bank’s loan officer or an inflexible algorithm able to condemn a small business owner to financial exclusion. Rather, a community of generous lenders can empower that small business owner with a crowdfunded Kiva loan.
In a democracy of 1.3 million lenders, not every individual will agree all of the time. In fact, it is almost certain that every individual will agree precisely none of the time! Some Kiva community members will remain unconvinced by the merits of Kiva’s lending to entrepreneurs in the United States. As the head of the Kiva U.S. program, I respect that viewpoint, as does everyone on the Kiva team. The good news is that Kiva lenders who are more interested in lending internationally should never be short of options for doing so.
And by the same democratic token, we respect the views of lenders from around the world who are enthusiastic about supporting entrepreneurs in the United States, or creating economic opportunities in their own communities.
Currently, Kiva lends in 90 developing countries around the world, and the United States. In the future, we hope to bring our crowdlending model to every country in the world, as we chase after our vision of a world where all people are empowered with the opportunity to chase after their dreams.