The USD 7.9 million partnership underscores the MasterCard Foundation commitment to enable financial inclusion strategies with high-impact potential. It enables Kiva to bring its crowdfunded capital to microlenders and social enterprises willing to try new loan products that would otherwise be deemed too risky or unproven to try.
Kiva has developed Kiva Labs, a set of experimental partners and loan products designed to encourage innovation in the microcredit and social enterprise sectors. The MasterCard Foundation’s support allows Kiva Labs to introduce or scale new financial products and service innovations among selected social enterprises and microfinance institutions serving smallholder farmers and rural populations.
It improves the capacity of social enterprises and microcredit providers to design and distribute new products, allows them evaluate the impact of these new products and services, and disseminate results across the microcredit and financial inclusion sector worldwide, to 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 maximise returns on capital, and financing undercapitalised “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 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 organisations who serve them. On the other side of the marketplace are ordinary individuals with an internet connection who lend as little as USD 25 to help crowdfund loans at 0% interest to help create economic opportunity around the world.
Kiva’s model provides 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.
Kiva’s loans are crowdfunded by their growing global community of 1.5 million individuals, lending in USD 25 increments. Kiva’s lenders have crowdfunded USD 900 million in loans and are able to lend and relend their money, with borrower repayment rates at 97%. 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.
With no expectation of financial returns, Kiva lenders are attracted to solving problems in the hardest-to-reach geographies and sectors. 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).
Field Partners repay Kiva according to the end client’s actual loan schedule, thereby reducing working capital requirements for flexible or long-term loans. 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.
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