Public Private Partnership
Two of the key hypotheses we are looking to validate with the Kiva Zip program are (1) whether social data can complement conventional financial underwriting in the assessment of borrowers’ creditworthiness, and (2) whether borrowers can help us grow our impact, by recruiting new lenders to experience the magic of lending on Kiva. Our hope is that when these lenders are repaid by the borrower that invited them to fund their own loan, some of them might go on to lend to other Kiva borrowers, perhaps in different countries. We’re really excited about how a new feature we’re rolling out for some borrowers in the U.S. over the coming weeks will help us explore both those hypotheses.
We’re calling it a “Private Loan Period”, and it works as follows: For certain U.S. borrowers, before they are posted to the public lend tab visible to all Kiva Zip lenders, a certain number of lenders will be required to fund their loan privately, by arriving directly at their loan page. Loans under $2,500 will be required to “recruit” seven lenders, and loans over $2,500 will be required to recruit fifteen lenders.
There are a number of ways in which lenders can fund these private loans. For example, the borrower could email the link to their loan page to their friends and family, or share it on social media; the borrower’s Trustee could promote it to their networks; or the borrower might even get some local media coverage that can drive potential lenders to their loan.
However they do it, the important thing is that the borrowers (and Trustees) have to “pay it forward” by helping spread the word about Kiva and growing the community of lenders before they can enjoy the benefits of a 0% interest loan and a million potential customers and brand ambassadors, which Kiva can uniquely provide.
The early data we’ve collected over the last year is encouraging. Not only have Kiva Zip borrowers and Trustees invited over 1,300 new lenders (who have loaned almost $150,000) to try Kiva for the first time, but (and this is the really cool part) borrowers who have invited at least 5 lenders to fund their loans have a repayment rate of 95%, compared to only 85% for borrowers who have invited 4 lenders or fewer.
“Leveraging social bonds to boost microfinance repayment rates”. Sound familiar? We’re hoping that combining the principles that Mohammad Yunus pioneered in Bangladesh with the cost-crushing, exponential power of the internet could have explosive implications for how otherwise-financially-excluded entrepreneurs access capital to invest in their businesses. Think Grameen 2.0.
We’re still figuring out which borrowers will be required to undergo a private loan period. Should borrowers of established Trustees, who have proven repayment rates over time, be exempted? Should more financially excluded borrowers be required to invite fewer new lenders to fund them? Should we base the “hurdle rate” on number of lenders alone, or also consider the total amount loaned? If you have any ideas on how we should implement this feature, we would love to hear them below, or in the ContactZip@kiva.org inbox.
Jennifer, the proud owner of Small Hand Foods in Oakland, is the perfect example of this feature in action. Through the promotion of her “private” Kiva Zip loan page to her own social network, she reached her goal of fifteen lenders in only a couple of days. These lenders loaned over $2,000 to Jennifer (an impressive demonstration of their faith in her character), and this $2,000 was matched by a generous family foundation in San Francisco. Jennifer’s loan was then automatically posted to the public Kiva lend tab, and since then another 23 lenders have helped her towards her goal.
Jennifer posted a comment on her conversation tab recently, saying: “Thank you all so much! I am completely honored at the outpouring of support for my business. Our loan request has been live for only four days, and we're already 87% funded! Every day when I see the increasing numbers of people supporting me I am awed and humbled. Thank you thank you!”.
But for helping us to grow Kiva’s impact by getting the word out to her friends and family about our program, and how lenders can help support the dreams of entrepreneurs around the world with interest-free crowdfunded microloans, it’s we on the Kiva team that should be thanking Jennifer.