Microloans for All?

The microfinance world is abuzz today after online microlending site Kiva.org kicked off an expansion program that will allow individuals to make loans to entrepreneurs in the United States. This is particularly newsworthy for the organization because it has been focused on facilitating loans in developing countries since its launch in 2005.

For the last year and a half, I have been writing about a select group of entrepreneurs around the world who have received microloans through Kiva, and I have been amazed by the impact of its online lending model. I have no doubt it will have the same impact for U.S. entrepreneurs who, given the current credit crunch, are strapped for funding too. However, I have some mixed feelings about the new offering.

I tend to think that U.S.-based entrepreneurs are on a different playing field than those who are trying to operate businesses in developing countries. Despite the reluctance of banks to give funding to entrepreneurs right now, it seems to me that entrepreneurs in America have more resources at their disposal, whether it be personal credit cards, or the possibility of starting a business from home to minimize start-up costs. This is not to discount the substantial segment of the U.S. population that is living below the poverty level, however, the reach that entrepreneurs have here -- even without access to funding -- is much greater.

Take internet access, for example. If you looked at the percentage of the population that is online in the U.S. versus those living in villages in Uganda or Cambodia, the difference would be drastic. I've written about entrepreneurs who've started businesses from their bedrooms and I would think just for the simple fact that they probably have internet access, they already have a greater chance of making it big.

I am not saying that I do not support Kiva's new initiative in the U.S. I am however pointing out that the needs of U.S. entrepreneurs and entrepreneurs living in developing countries are quite different, and to mix them in one place leaves me torn. Would I rather help entrepreneurs in developing countries, or some in the U.S. as well? If I give my money to a U.S. entrepreneur, is there someone more deserving of it elsewhere? I think what will be interesting in the coming months is to see where Kiva lenders feel their money is most needed and how overall distribution of funds pan out over time.

Since anyone around the world can give to an entrepreneur listed on Kiva, I wonder if lenders abroad will be more inclined to keep lending to entrepreneurs in developing countries and similarly, if those in the U.S. living with the very real impact of the recession, will be more concerned with stimulating their own economy over contributing to the well-being of others abroad. Or, perhaps it will be a mix. Of course, it's all a matter of the type of social impact individuals want to make.

What's really important, I believe, is the evolution of microfinance over the last few years -- the concept has really taken off and provided millions of impoverished people the opportunity to create better lives for themselves by running a business. Beyond that, the development of more peer-to-peer lending sites as a viable alternative for sources of capital, certainly bodes well for the growth of entrepreneurship in the United States. And, at Inc., that's what we like to see.

What is your opinion of Kiva's new offering? Are you an entrepreneur looking for funding? If so, would you consider applying for a microloan through Kiva?

For more information on Kiva loans in the U.S. and the process for applying, check out this announcement, or visit Kiva.org.

Kiva Borrower Phun Them, Live from Cambodia

A little over a year ago, Inc. connected with Kiva.org, a website that facilitates microloans to entrepreneurs in developing countries. Inc.'s staff made $25 loans to a diverse group of nine entrepreneurs across the globe. Among the entrepreneurs we selected: We loaned money to the owner of a small retail store in Tajikistan that sells consumer electronics; we funded a rice winemaker in Cambodia and learned about the primitive but intricate brewing process that was this entrepreneur's livelihood; and we funded a group loan that was disbursed to five women living in the same village in Uganda, each of whom set up her own business with her portion of the loan money.

To the extent that we have been able to send and receive messages to our borrowers through Kiva's staff and its affiliates, we have tracked the progress of these entrepreneurs on our Kiva Connection blog (blog.inc.com/the-kiva-connection). It has been a happy partnership: Five of our entrepreneurs have already repaid their loans in full. A few of them were second-time borrowers, proving that with just a small but steady source of capital, entrepreneurs can make things happen.

Now, filmmakers Rachelle Escaravage and James Connolly have documented several of the lender-to-borrower connections made through Kiva's network. Beginning last September, the filmmakers traveled the United States interviewing American entrepreneurs who had loaned money through Kiva to their small business counterparts in developing nations. The filmmakers then traveled to Asia, visiting villages in Vietnam, Cambodia, and Thailand to meet with and interview some of the recipients of Kiva loans. The resulting video features interviews with Inc.com senior editor Rod Kurtz in New York City, and Phun Them, a silk weaver in Cambodia to whom our staff lent money. As her story suggests, the obstacles one faces in starting and growing a business are pretty familiar, even if your seed money only totals $500 and you rely on worms to spin your raw materials. To watch the video, click here.

Kiva and "30 Under 30"

Big things are happening at Kiva.org. Not only does the organization's day-to-day impact continue to grow virally, but it just won $300,000 from American Express for placing third in the company's annual Members Project competition. The contest invites individuals and organizations to submit their ideas for a project that will help change the world. The idea is to get AmEx card members to vote on what they think are the most worthy projects and then AmEx doles out $2.5 million in total to fund the top five vote-getters. (The grand prize was $1.5 million).

Kiva's project was all about what they are already doing -- changing the lives of entrepreneurs in developing countries through microloans -- and building on the impact of their online lending model to reach an even greater number of deserving entrepreneurs around the world. According to Kiva, the $300,000 grant will allow for $6 million in loans to be given out to 12,000 additional entrepreneurs over the next ten years.

So, besides the potential that this brings for a still-relatively-small non-profit, why is this such a big deal? Well for one, Kiva placed third out of almost 1,200 projects submitted, meaning that in just a short amount of time, they influenced enough people to take action and vote for their cause. With the help of Involver, one of Inc.com's 30 Under 30 companies this year, Kiva created an online video campaign that ran on Facebook, MySpace, and their own Website, which made it extremely easy for supporters to spread the word about Kiva through their social networks and professional circles.

Involver, which was founded in 2007 by 26-year-old Rahim Fazal and 27-year-old Noah Horton, helps companies create lucrative online marketing campaigns by providing them with a platform to build, manage, and distribute videos across large community platforms like Facebook. Involver's technology is results-oriented, so companies that use the technology are not just putting out a self-promotion video, but they are offering their customers a way to engage. With the Kiva campaign, anyone who watched the video on Kiva's Facebook page was prompted at the end to vote for them in the American Express competition. A simple click registered a vote for Kiva's campaign without redirecting the viewer to navigate their way around the American Express site. (Watch Kiva's campaign video here.) Besides voting, viewers also had the option of joining the campaign through Facebook or sharing the video with their friends. Friends can watch the video and vote without having to add an application to their profile. By the end of the competition, the Kiva video had been viewed 140,000 times, and those that passed it along shared the video an average of 12.75 times.

Kiva is certainly an Involver success story. In the American Express competition, they were up against much larger corporations with greater marketing budgets in a race for votes and supporters. And they got those votes without spending a lot of money or effort to publicize their project. Too often companies waste marketing money for online campaigns that turn out to have little to no impact. But Kiva and Involver have proved that when customers are given a direct way to engage with your brand, they almost always become proactive. Do you think Involver's model for online marketing could work at your company? Why or why not?

Microfinance Goes Back to Its Roots?

Major leaders of the global microfinance movement gathered this week at the Microcredit Summit Campaign in Bali, Indonesia to discuss some of the pressing issues that have affected the microfinance sector over the past year. A major issue of debate among Summit participants, which included Nobel Peace Prize winner and father of microcredit, Muhammad Yunus, was what to do about the growing commercialization of microfinance.

If you have been following any of the news on microfinance lately, you know that there has been a lot of attention paid -- both good and bad -- to the movement in the past couple of years. Microlending has become extremely popular, and as a result, an increasing number of commercial banks and for-profit institutions are now marketing loans to the poor. Many of these institutions have taken advantage of uneducated borrowers in the developing world and charge very high interest rates that are often unclearly stated in the terms of the loan. Leaders of the microfinance world believe that these kind of profit-seeking ventures are at odds with the underlying mission of microfinance, and the issue has sparked much controversy in the industry over the past year.

As part of the Microcredit Summit earlier this week, I listened in on a global conference call that addressed the need for greater transparency among global lenders in the microfinance market. The purpose of the call was to announce the launch of Microfinance Transparency, a non-governmental organization designed to publicly report the interest rates of lending institutions worldwide. The US-based initiative is headed by industry expert Chuck Waterfield, and is backed by Muhammad Yunus, founder of Bangladesh-based lending institution Grameen Bank, and by Summit Campaign director, Sam Daley-Harris. The organization already has a substantial list of endorsers, including co-founder and executive director of Kiva, Matt Flannery.

During the call, Waterfield described Microfinance Transparency as an "information clearing house," with the goal of establishing truth-in-lending standards to parties in both the developed and developing world. Several lending institutions -- that together represent more than 20 million borrowers -- have already agreed to report their interest rates to Microfinance Transparency. According to Waterfield, the first batch of data collected will be published on the organization's Website at the end of October. Ultimately, the site will become a searchable database for anyone seeking information on microfinance lenders.

The main message that came through during the call -- and that was repeatedly emphasized by Muhammad Yunus -- was that if microfinance is going to achieve its founding mission of helping the world's poor get out of poverty, then it must operate within a fair market environment. What do you think? While it remains to be seen how effective Microfinance Transparency will be in leveling the playing field, do you think the industry needs a self-regulating organization to bring it back to its roots? Or do you think that in order for microfinance to truly reach all the world's poor, a competitive and commercial environment must exist?

Small Loans, Big Results

Thanks to a microloan from half a world away, a Cambodian rice winemaker named Phal An is ready to expand her growing business.

On the day that Phal An is interviewed about her business, her modest home in the village of Damnak Sankae, Cambodia, is crowded with excited family members. Phal An is a rice winemaker in her late 50s -- and one of thousands of entrepreneurs listed on Kiva.org, a website that facilitates microloans to entrepreneurs in developing nations all over the world.

This past December, Inc.com embarked on an editorial project to cover the rapidly growing phenomenon of microfinance. As a staff, we contributed a modest sum and became lenders on Kiva.org, sponsoring a diverse group of entrepreneurs that includes Phal An, as well as business owners located in Peru, Ecuador, Uganda, Tanzania, and Tajikistan. Updates on these entrepreneurs and their businesses and how they are using their loans are being posted frequently on a new Inc.com blog called "The Kiva Connection."

The following Q&A with Phal An (pronounced Paul Anne) was conducted with the help of Jessica Young, a Kiva fellow in Cambodia, and with Ponnak Kiry Pa, who is Phal An's loan officer in Cambodia. Young has been working on the ground in Cambodia for several months to help bridge the gap between Maxima, the microfinance institution that disbursed the loan to Phal An, and Kiva borrowers in the region.

The interview questions for Phal An were sent via e-mail to Young, who along with loan officer Kiry, visited Phal An at her home in late March. Young posed the interview questions to Kiry in English, who in turn translated the questions into Khmer, Phal An's native language. When translated Phal An's answers back to English for Young to record, he referred to Phal An in the third person, acting in effect as the narrator for Phal An's story.

The interview took place at a central gathering place for the family -- a table used for cooking, eating, and sleeping. In an open, covered space in the back of the home, Phal An has her winemaking equipment set up. It is common for Cambodian entrepreneurs who live in the countryside to operate their businesses out of their homes, because it requires less start-up capital and travel expenses are reduced. In addition, family members often contribute heavily to the business and female entrepreneurs are able to stay home and care for the household while working.

Here's her story:

How long has Phal An been making rice wine?

She has been making rice wine for four years, and all of her siblings do as well. During the Pol Pot regime [1975-1979], her family went to Thailand and stayed at a U.N. camp. While there, her younger brothers learned how to make rice wine and have since taught her.

Phal An received a $700 loan funded through Kiva. What is she using the money for?

Phal An has 10 middlemen in her village who rely on her production. Often, she can't produce enough to meet the demand of all 10, so she borrowed money to buy more rice in bulk. She also used the funds to purchase rice wine from her brothers. They have only one middleman in their region, so she buys their surplus and resells it to her middlemen.

Who are her primary customers?

She sells to local middlemen who then sell her wine to small pubs in the countryside.

Does Phal An have any local competition?

There are five to six other producers in her village, Damnak Sankae. It's a large village with a population around 3,500, so the rice winemakers aren't heavily concentrated.

How long does it take to produce the final rice wine product?

The entire process takes six days and four hours.

Can Phal An describe the process?

The longest step is the preparation. For six days, a mixture of rice, water, and a chemical called Tam Bae soak in a bucket. Then, the combination is transferred to a boiler -- the first main piece of equipment. The tin boiler is sealed air tight, with only two exits (one serving as a chimney through the roof of the house, and the other as a pipe to transfer the liquid as it evaporates). A fire is lit with hay underneath the tin container, and rice husks are shoveled inside to fuel the fire. For two hours, the mixture must boil.

As it evaporates, the steam travels through the pipe to the second piece of equipment -- a clay storage container -- where it condenses. (The rice is thus left in the tin boiler, and the wine is transferred to the clay container.) This process takes an additional two hours. Tubing attachments let the wine drain from the large container into smaller jars, and from one evaporation cycle 60 liters of wine will be produced.

How much wine can she make in a day?

Ninety liters.

What is her daily income?

This is complicated, as her rice wine sales (135,000 riel/day or $33.75/day) only cover the cost of the wine production. Her family income is generated as a result of using a byproduct of the wine (the enhanced rice) as pig feed. The family owns and raises several pigs in addition to their rice wine business. Once the rice and wine separate, the leftover rice is combined with factory-produced pig feed. The combination helps their pigs grow faster so they will yield a better market price.

It takes four months to raise the pigs, and Phal An sells them three times a year at 12,000 riel ($3) per kilo. Usually, she can sell between seven and eight pigs to earn $1,680-$2,160 every four months. After covering the $50 start-up cost per pig, the family business makes roughly $400 per month.

Do her husband and other family members help with the business?

Yes, her husband and one of her sons help. They all share the same responsibilities so that if one is absent, production can continue. Often Phal An oversees production alone while her husband and son gather firewood.

What is her biggest challenge in running the business?

The biggest challenge is being able to maintain a profit relative to her increasing costs. The price of rice keeps increasing and the middlemen's purchasing price for wine isn't rising at a comparable rate. The other difficulty she faces is that occasionally, her pigs will die before she is able to sell them. Because this is where her family income is generated, the health of the pigs is critical to the family's livelihood.

What has the experience of receiving a loan through Kiva been like for Phal An?

She has greatly benefited from Maxima's services and its door-to-door policy. Maxima's home visits have saved her from spending time and money traveling to Phnom Penh. It would take 10,000 riel ($2.50) and two hours for her to make the trip. More importantly, she feels safe knowing her loans are disbursed at home and she won't have to travel carrying such a large sum.

The loan funded through Kiva has also had a considerable impact on her operations. Before the loan, she had to buy and transport rice every other day. Now, buying in bulk, she gets a better price and has cut transactions back to one purchase per month. She now has the capacity for increased production and is able to meet her customers' demand. Her production since the loan has tripled from 30 liters per day to 90 liters per day. Using the new sales, she's purchasing more rice to maintain the higher production level. She now makes more pig feed than she can use, and has generated a side business of selling the excess feed to her neighbors.

The Kiva Connection: Exclusive Interview from Cambodia

When I set out to blog about the entrepreneurs that Mansueto Ventures sponsored through Kiva.org, I wanted to provide readers with as many details as possible about the day-to-day lives of small business owners in developing countries and how exactly access to microfinance was impacting their operations.

As you can imagine, it is not a simple task to connect directly with entrepreneurs in developing communities, as most do not have access to communication technology. So far, what I have learned about the entrepreneurs we sponsored and what I have reported here on this blog has come from examining the background profiles and photos posted on Kiva's website of each borrower. However, this snapshot is only part of their story, and as a journalist, I felt it my duty to uncover as much of the individual's story as possible.

This is where Kiva comes in. The organization's staff has been amazingly instrumental in getting me access to the information I desired. I have connected with several Kiva fellows, volunteers who are stationed in countries all over the world where Kiva has microfinance partners. These fellows are working on the ground to facilitate the smooth transaction between the local lending institutions and their clients. As such, many of these fellows have the chance to visit with entrepreneurs in their homes and places of business.

Jessica Young, a fellow working with one of Kiva's microfinance partners in Cambodia, was able to arrange a meeting with Phal An, a rice winemaker in Cambodia, and one of the entrepreneurs we loaned to through Kiva. Jessica graciously agreed to bring my interview questions to Phal An and report back with her answers. In order to conduct the interview in Phal An's native language of Khmer, Jessica brought along Phal An's loan officer, Mr. Kiry, to act as translator.

Jessica visited with Phal An at her home in late March, and since then there have been several e-mail exchanges between us detailing the experience. Here is an excerpt from one of Jessica's e-mails (with some words added or changed for clarification purposes) in which she describes her journey to Phal An's home in the village of Damnak Sankae and the nature of their meeting:

We arrived [at the home] about an hour before lunch time, so [Phal An and her family] were already starting to prepare to cook the food. Her husband was at home, as was her son, so during the course of the interview they would take turns adding hay to keep the fire [for the rice wine] going. The overseeing of the rice wine production is an ongoing activity throughout the day. [Phal An] invited us to sit down, answered all of our questions and offered us water and mango. It's common for clients to offer tea or water when greeting you in their homes.

Also present was her daughter who now has a child, so the family was playing with the baby. During the course of the interview her second son came home, as families will typically eat lunch together. Traditionally, it is the woman's responsibility to prepare the meals and look after the house, so she, like most of the female clients, will begin work around 7 A.M. and take two main breaks -- one to cook lunch and one to prepare dinner. In Phal An's case, she can do this while she simultaneously looks after the rice wine. Because she runs the side business of pig raising, she also has to tend to the pigs, feeding them and giving them medicine to prevent them from getting sick.

She was expecting us [for the interview] because another loan officer who is assigned to her district stopped by to see if she was home and give [Mr. Kiry and I] directions. Most homes are off the paved national roads, on side dirt roads, reached by cutting along paths in between people's houses. As they're unmarked, they can be difficult to find if you haven't been there before, unless a local villager is familiar with the name and can point you in the right direction.

After the interview, Jessica provided me with such a wealth of information about Phal An's winemaking business, as well as photos of her winemaking equipment, that I felt it important to share her story with readers beyond just those who follow this blog. Here is the link to the extended Q&A with Phal An, and another to a slideshow that depicts the process of making the rice wine. The interview with Phal An helped to shed light on the significance that one small loan can have to a hopeful entrepreneur.

I am grateful to everyone who has helped me relay Phal An's story, and to tell it accurately. A special thanks to Jessica for stepping into the journalist's role and reporting everything so thoroughly.

The Kiva Connection: Business to Business Lending

Last week, Advanta, a major provider of small business credit cards, announced that it has partnered with Kiva.org to launch KivaB4B, an initiative that gives small business owners and entrepreneurs the opportunity to increase their contribution to the social cause of microlending. The KivaB4B program encourages entrepreneurs in the U.S. to support their counterparts in developing countries by making microloans through Kiva. Advanta small business customers who make a loan using their Advanta credit card will get their grant matched by Advanta for up to $200 per month.

With KivaB4B, Advanta and Kiva have tapped into a very powerful cause in the entrepreneurial community: business-to-business giving. In my experience meeting and writing about small business owners, I have always been struck by how quick entrepreneurs are to lend a hand to a fellow business owner just starting out, or advise an entrepreneur who may be stumbling through the growth process.

Yet small businesses are often reluctant to align themselves with social causes because they may not have the means to make the kind of substantial contribution that a larger, public company could. Same goes for the average person looking to make a difference. The minimal financial commitment needed to make a microloan is precisely the appeal of social causes like Kiva. The average entrepreneur on Kiva.org is requesting less than a $1,000 loan. KivaB4B extends that appeal to the small business arena, allowing small businesses the opportunity to double their social impact with just a couple hundred dollars.

There is also the aspect of personal connection when lending through Kiva. Borrower profiles not only help lenders put a face to a name, but it also gives small business owners the opportunity to select a personal story that they connect with or locate a specific business sector they wish to support. As part of the KivaB4B launch activities last week, an Advanta customer was introduced to the entrepreneur she loaned to through Kiva, a seamstress from Samoa. This marked the first time that a Kiva borrower has been brought to the United States to meet face-to-face with her American supporter. You can read more about the Samoan seamstress, Senerita Mataomaile's story at this link. The meeting of Senerita Mataomaile and her lender, San Francisco-based filmmaker Karil Daniels, is just one of the many inspiring stories on the KivaB4B site and a great example of entrepreneurs connecting through Kiva and through the cause of microlending.

What do you think of the KivaB4B initiative? Are you more inclined to give to a social cause if you know you could double your financial impact?

The Kiva Connection: All About Group Loans

In continuing to introduce the entrepreneurs Mansueto Ventures has loaned to through Kiva, I thought I'd write about one of the more unique loans in the bunch. We contributed to a group of five women (pictured below), who live in Uganda and each have their own business. However, instead of each of the woman applying for an individual loan, they are receiving a group loan, meaning the money that they request (in this case the total loan amount was $1,650) goes to fund all five of the businesses they are involved with.

Each entrepreneur can apply for a different amount of money, but each borrower is accountable to the others in the group when it comes to meeting repayment deadlines. Some of the microfinance institutions that Kiva partners with only disburse group loans because the format is often more successful (or desirable) than individual lending on a number of levels.

For the MFIs, group loans take less time and money to manage -- the format not only allows the institutions to disburse several loans at once, but also to collect the repayments all together. Additionally, group lending makes it possible for the MFIs to reach a greater number of entrepreneurs in need. For the borrowers, being part of a group loan creates a kind of community among the participating entrepreneurs. These women not only learn from each other, but they become each other's support network. If one member of the group defaults on a loan, the entire group is liable for paying that money back. Group loans have an extremely low default rate because each individual knows that his or her reputation is on the line.

Pictured here is the group that calls themselves Lugoba A. The five women are: Christine Namwalo, Betty Mirembe, Amina Nanyonga, Gorette Nantume, and Ruth Nankya. Ruth and Gorette have retail businesses, Amina is in charcoal sales, Betty runs a canteen selling snacks, and Christine runs a restaurant in their village of Nansana. I was curious about the pink papers in their hands and I was told that a document is given to each entrepreneur by the microfinance institution as a formal acknowledgment that they have received the loan. The form also represents their pledge to pay back their loan on time.

For more information about the Mansueto Ventures Kiva lending project, click here.