The project aims to push the boundaries of microcredit by developing, scaling and replicating high-impact, client-centered loan products
Submitted by Kiva.org
Kiva and The MasterCard Foundation today entered into a five-year, $7.9 million partnership to test and scale financial services and loan products tailored to the unique needs of smallholder farmers and rural populations in Sub-Saharan Africa. Support from The MasterCard Foundation underscores its commitment to enable financial inclusion strategies with high-impact potential.
“This partnership enables Kiva to bring our crowdfunded, risk-tolerant, patient capital to microlenders and social enterprises willing to try new evidence-based loan products that would otherwise be deemed too risky or unproven to try,” said Premal Shah, President and cofounder of Kiva. “Throughout the lifespan of the project we will test what works, experiment with scalability and replication, and share our results across the financial inclusion sector.”
“Kiva has demonstrated ingenuity in developing new ways to enable smallholder farmers and others living in rural and remote areas of Africa to access the working capital they need and want,” said Ann Miles, Director of Financial Inclusion and Youth Livelihoods at The MasterCard Foundation. “We’re proud to partner with Kiva and Kiva Labs to support innovation in this important sector, expand the range of possibilities and empower larger numbers of people to improve their livelihoods.”
Creative solutions and loan products are driving progress around the world, changing lives and lifting entire communities out of poverty. Yet millions of people still lack access to the capital they need and vast numbers of problem solvers can’t find capital to scale their own ideas. Standard microcredit products follow very rigid repayment schedules that do not match well with the irregular income streams of the poor, especially farmers. Multiple studies have demonstrated the limitations of standard microcredit models that leave millions without access to formal financial services.
Kiva has set out to change this picture through Kiva Labs, a set of experimental partners and loan products designed to encourage innovation in the microcredit and social enterprise sectors. Kiva Labs’ partners such as Juhudi Kilimo have developed successful models for financing under collateralized, productive, moveable assets like hybrid dairy cows that more traditional providers view as too high-risk. Nevertheless, these models can bring sustainable productivity gains and wealth creation for clients.
The MasterCard Foundation’s support allows Kiva Labs to:
â— Introduce or scale new financial products and service innovations among selected social enterprises and microfinance institutions serving smallholder farmers and rural populations.
â— Improve the capacity of social enterprises and microcredit providers to design and distribute new products.
â— Evaluate the impact of these new products and services, and disseminate results across the microcredit and financial inclusion sector worldwide.
â— Change the industry’s perspective on what is deemed “too risky” or “unproven”.
Financial products and services under consideration to adopt or scale-up include flexible repayment schedules, providing market linkages to help clients maximize returns on capital, and financing undercapitalized “would be” innovators and social enterprises. For example, Kiva’s social enterprise partner Komaza helps farmers in drought prone eastern Kenya convert drylands for small-scale forestry that can generate sustainable income for the families’ next generation. The social enterprise equips the farmers with training, as well as with Kiva loans, to plant fast-growing trees on unused land. Komaza then buys the trees and links them to larger lumber markets to meet the demands of Kenya’s rapid growth.
Kiva is uniquely positioned to push the boundaries of microcredit, accelerate the development of new loan products and services, encourage replication, and gather and transfer knowledge across the sector.
At its core, Kiva.org creates an online marketplace. On one side of the marketplace are the two billion people worldwide who lack access to formal financial services and the diverse organizations who serve them. On the other side of the marketplace are ordinary individuals with an internet connection who lend as little as $25 to help crowdfund loans at 0% interest to help create economic opportunity around the world.
Kiva’s model provides several advantages for innovation and replication:
â— Global network of Field Partners – In order to reach some of the most isolated populations in the world, Kiva works with more than 300 Field Partners in 80+ counties including 60+ microfinance institutions, NGOs, social enterprises and universities in Africa, where The MasterCard Foundation’s work is primarily focused. These partners identify potential Kiva borrowers, post their profiles to Kiva.org and administer the loans. This vast network of partners and on-the-ground relationships is ideal for gathering and transferring knowledge, as well as encouraging new high-impact loan products around the world.
â— Crowdfunded capital – Kiva’s loans are crowdfunded by their growing global community of 1.5 million individuals, lending in $25 increments. Kiva’s lenders have crowdfunded $900 million in loans and are able to lend and relend their money. With borrower repayment rates at 97%, Kiva’s crowdfunded capital is a growing, sustainable and unique source of financing for Field Partners and borrowers.
â— Low cost – Kiva loans are disbursed to Field Partners at 0% interest. Field Partners are able to charge borrowers interest to help cover the costs of administering loans and providing services.
â— Risk tolerant – With no expectation of financial returns, Kiva lenders are attracted to solving problems in the hardest-to-reach geographies and sectors.
â— Patient – Field Partners set loan terms that are appropriate for the loan product and borrower, which may mean relatively long loan terms (e.g., 7-10 years for crop rehabilitation).
â— Maturity matched – Field Partners repay Kiva according to the end client’s actual loan schedule, thereby reducing working capital requirements for flexible or long-term loans.
â— Risk mitigating – Kiva lenders assume the risk of individual borrower defaults, greatly reducing the costs and risks to Field Partners for experimenting with new products or markets.
Kiva.org is the world’s first and largest crowdfunding platform for social good with a mission to connect people through lending to alleviate poverty. By lending at little as $25, anyone can help a borrower start or grow a business, go to school, access clean energy and realize their potential. Since 2005, Kiva and their growing global community of 1.5 million lenders have crowdfunded more than $900 million in microloans to 2.1 million entrepreneurs in 86 countries, with a 97% repayment rate. For more information, visit www.kiva.org and follow @Kiva on Twitter.
About The MasterCard Foundation
The MasterCard Foundation works with visionary organizations to provide greater access to education, skills training and financial services for people living in poverty, primarily in Africa. As one of the largest, private foundations, its work is guided by its mission to advance learning and promote financial inclusion to create an inclusive and equitable world. Based in Toronto, Canada, its independence was established by MasterCard when the Foundation was created in 2006. For more information and to sign up for the Foundation’s newsletter, please visit www.mastercardfdn.org. Follow the Foundation at @MastercardFdn on Twitter.
Kiva.org is the world’s first and largest crowdfunding platform for social good with a mission to connect people through lending to alleviate poverty. By lending at little as $25, anyone can help a borrower start or grow a business, go to school, access clean energy and realize their potential. Since 2005, Kiva and their growing global community of 1.5 million lenders have crowdfunded more than $920 million in microloans to 2.2 million entrepreneurs in 86 countries, with a 97% repayment rate. For more information, visit www.kiva.org and follow @Kiva on Twitter.
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