When Muhammad Yunus loaned $27 to a group of 42 families in famine-ravaged Bangladesh in 1974, there is no way he could have envisaged how the internet might one day allow his labour to be spread around the globe. Mr. Yunus, recipient of the 2006 Nobel Peace Prize and driving force behind the enormously successful Grameen Bank, is the pioneer in the field of microcredit, which seeks to provide very small business loans (by western standards) to those who fly well under the radar of the established banking system, most often poor women in the developing world.

The ability of microloans to lift families out of poverty has been well documented. As of September 2007, Grameen Bank has more than seven million borrowers, 97 percent of whom are women. With over 2000 branches they provide services in just about every corner of Bangladesh. They claim a repayment rate that is the envy of most Western banks, whose own lending practices are subject to intense debate and even 30 years ago were the very catalyst for Grameen’s birth.

While many of us have followed Mr. Yunus’s initiatives from the comfort of our living rooms, his efforts were difficult to support beyond the cheering. Grameen Bank is for the most part a regional endeavour with the majority of its work in Bangladesh, although they now have branches in other impoverished areas of the world. But what if a direct link could be facilitated for loans between wallets in the wealthy west and empty pockets in Africa, Central and South America, and Eastern Europe? This is where the internet and the work of an organization named Kiva have met in what is shaping up to be a microcredit revolution.

Kiva is a non-profit organization based in San Francisco, California, that allows people to lend money via the internet to small businesses in developing countries throughout the world. The loan cycle works like this:

Lenders get to choose a specific business profiled on the Kiva website and make a loan using their credit card and the services of PayPal.

Kiva forwards funds to the microfinance institution they partner with in the loan recipient’s home country.

Over time (normally 6-12 months), the partner organization collects repayments and provides updates about the borrower’s business on the Kiva website

Funds are returned to the lender after the loan is repaid, and one can choose to withdraw from the program or re-lend.

Kiva, with over $13 million in loans already disbursed, has proven so successful in attracting funds that they have temporarily restricted new business loans to just $25 until they are able to match the imbalance of loans offered and requested. This situation might not be remarkable if lenders were promised a healthy rate of interest on their loans, but the fact is that Kiva pays no interest to lenders, who enter these agreements solely with a trust that they will be repaid. A Kiva loan is a hybrid of business and philanthropy, an extension of charitable giving if you will.

The vast majority of lenders have chosen to ‘re-invest’ paid up loans in new ones, which probably accounts for the $25 limit on new lenders. Also limiting new participants is the generosity of people like my friend Jane in Courtenay, who has made available a total of $1000 to fulfill the needs of four separate businesses – a mother of two and a mother of six, both Nigerian women running small foodstands, a woman in Peru selling a local dish called ‘talales’, and a Kenyan widow and mother of four children who buys bales of used clothing that she repairs and sells back to retailers at a small profit.

One novel aspect of Kiva’s operation is their technology-enabled ability to pool a number of very small loans into the $250-$750 requirements of the typical recipient. This also allows lenders to reduce their overall exposure should any single borrower be unable to repay a loan, although with a repayment rate of over 99%, I don’t think that many lenders are particularly concerned about the ‘risk’ involved.

Kiva sends 100% of loans to borrowers; at present their expenses are funded entirely by donations and grants. PayPal provides free processing of transactions, and a who’s who of internet technology pioneers are providing various degrees of support that keep Kiva’s expenses to a minimum. Indeed, Kiva has backing from some very impressive circles and I’ll wager that their future success will be off the charts.

Many are attracted to Kiva’s model by the ability to choose their own loan recipient and follow their progress online through the Kiva site. My friend Jane told me, ‘I think of it as a savings plan with goodwill as interest. I also like being connected to other cultures and I like that looking into Kiva clients makes me realize how wealthy and how much opportunity we have in Canada.’

The Kiva site is rich in information about their own operations, details about the borrowers? businesses, and background on the partner organisations who are administering these loans in the destination country. Pay them a visit at www.kiva.org. What an impressive contribution towards helping lift the less-advantaged out of poverty.

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