Crowdfunding the Developing World

Changing people's lives one loan at a time

Clint Schaff interviews Matt Flannery, CEO of

A few dollars in the U.S. can be the investment that changes a person's life in a Third World country. That's the idea behind, a crowdfunding project that wants to change the world -- by teaming up micro-lenders with entreprenuers in countries with struggling economies.

Matt Flannery, co-founder and CEO of Kiva, began developing in late 2004 as a side-project while working as a computer programmer at TiVo Inc. The 27-year-old and his wife, Jessica, started Kiva the business in 2005, turning a personal Web site into an organization that changes lives.

Kiva, a word that can loosely be translated from Swahili into “agreement,” works with entrepreneurs in developing countries, hooking them up with local microfinance institutions. allows lenders to see pictures of the entrepreneurs, and read how each plans to use a loan, along with blog updates from entrepreneurs they’ve sponsored.

Match microfinancing with crowdsourcing, and you have crowdfunding. Three years later, Kiva has connected more than 65,000 micro-lender with about 9,000 entrepreneurs in developing countires through “loans that change lives.”

Clint Schaff: So you co-founded Kiva? Who else is involved?

Matt Flannery: We have 12 people on our team in San Francisco. Kiva started about three years ago as an idea. Jessica, my wife, and I started a project in eastern Uganda. That project got picked up in the media, and in the blogosphere specifically. I had to quit my job to scale this job from a project in Uganda into microfinancing worldwide. Kiva has almost 70,000 lenders. Ten percent are from Europe. Ninety percent are from Canada and the USA. Most are Caucasian Americans who watch Frontline (a PBS show which aired a piece on Kiva). The lenders are thirtysomething Americans all across the political spectrum, and generally are wealthy and white.

Q: What is Kiva doing -- and accomplishing?

A: Our mission is to connect people through lending to alleviate poverty -- the idea of connecting people, not simply to raise as much money as possible, but creating as many possibilities as possible to connect the developed and developing worlds. When you loan to somebody, you are connected in a way that is more binding than simply donating. Many (lenders) do it out of curiosity at first, and it gets very addictive. They like getting the information coming out a developing world and then supporting initiatives there. The fact that the stories are really authentic and maybe posted yesterday by someone at an internet café in a rural area and the opportunity to connect with them are very appealing.

The entrepreneurs come from about 30 countries. The majority of businesses are in Africa. Often you can’t find them on the site, because they get funded first. Lenders usually microfinance deals with businesses that do some kind of trade -- businesses or stores that are buying and selling crops, buying and selling clothes, buying and selling fish, craftsman, matching patchworks, even some health related business, buying and selling medicine.

I’ve been to Uganda quite a few times, working in a refugee camp outside of Kampala. We see a lot of refugees displaced by the war, living in squalor. Given a loan of $500, one gentleman started a water business. Now people don’t need to leave to go to the city to buy water. Now, they can buy from their neighbor. They can overcome isolation.

Q: What motivated you to start your project?

A: I grew up sponsoring children and connecting to children all over the world with $20 a month. I had a good experience with that as a kid. Growing up, I visited a lot of people across the world and was deeply affected -- witnessed people having to make choices of buying medicine for one child and feeding the rest of their children, choices no one should have to make. This intimate exposure gave me a reason to care and think about that. But, when I would come back to my comfortable world, there was no way to act on that. I wanted to create a more lasting connection between me and my family and my friends and the people I met in East Africa. I wanted there to be a dignified way to partner with people in the developing world to help them get out of poverty. I was attracted to the idea of lending to people. There’s a mutual respect. You can connect of over ideas for business over making improvements. Progress over poverty is an idea we like to emphasize. I personally was exhausted and desensitized by the emphasis in America and on images of people in poverty and suffering and people dying and babies starving. I think people are overwhelmed and exhausted by that. I was hoping that we could create something a more positive. I was hoping we could focus on doing something that we can succeed in and track, like a business plan.

Q: Time magazine named you person of the year. And Muhammad Yunus, who founded microlender Grameen Bank in 1976, won the 2006 Nobel Prize. How have these developments helped Kiva?

A: We got kinda lucky that we started this project and that at the same time some other things happened -- Yunnus winning (the Nobel Peace Prize), the rise of person-to-person lending, and the beginning of it in America and Europe.

Q: What percentage of microloans are paid back? How do the microlending partners stay profitable? How do your loans compare to bank loans?

A: Our default rate is zero percent. Our deficiency rate is 7 percent, those late in paying back their loans.
The entrepreneurs pay interest to the local field partner, and the average interest payment of about 20 percent. This money goes toward being sustainable, help pay for infrastructure and cost of capital, etc.

We're not competing with banks. We’re competing with a non-market, with inactivity. India’s Grameen Bank was lending to poor women. It’s not as if they could walk to the bank and get a high interest loan. There was no bank. They had no histories, no collateral.

Q: What's really new about crowdsourcing? And where is it going next?

A: We're attracting a source of funds on the internet. Microfinancing is not new. We’re the first to do it on the internet. And this opens up a lot more capital that was previously unlocked. There is more money and more interest than we expected. There is a new kind of debt capital – person-to-person debt capital. The people want to loan at different rates. They are flexible about when they’ll be repaid. They accept the zero percent rate of the entrepreneur.

Q: Is there money to be made with crowdfudning? If so, why will some people work with Kiva entrepreneurs with no expectation of making a profit so that others can?

A: Well, I’m making money. makes money. makes money. Globalists Giving makes money. There are many people making money. Kiva happens to be a non profit so we don’t distribute the money to investors. Our lenders are lending at submarket rates. We’re trying to change it so they can make market rates. They are making riskier 0% loans. They are doing it because they are paying to have a connection and information from the developing world.

Q: Do you think there's wisdom in crowds?

A: We’re kind of doing crowd due diligence as well. We’re sending 30 people to sites to visit virtually all 9,000 businesses – all visits by volunteers. They are travelling all over the world.

The crowds are making risk decisions. They are making decisions about where to place their money. Certain trends are happening that affect the economics of their businesses. They are skewing the philanthropy based on their subjective desires. Our lenders really like agricultural and rural loans, women and Africans.

Q: What surprised you the most with your project?

A: Exactly how popular this would be in the press, and the extent to which the American public would care about it, that really surprised me. There is not much precedent of philanthropic Web sites that cut through and to which Americans connect. Kiva broke through by offering loans instead of charity.

The extent to which people care about it is surprising. It shows you that people have a latent desire to help people. If they believe the money is going to a place it is supposed to go, people have a capacity and interest to help people. It’s a beautiful thing.

Q: On your own Kiva profile, you write that you loan "because you love the stories." What is one of your favorites?

A: Last week, there was this guy in Azerbaijan. He purchased a rifle for $1,000. He's a hunter. No one believes his gun cost $1,000 because the same rifle costs $250 at Wal-mart. Lenders were concerned about fraud, so we contacted the Peace Corps to go check it out and sure enough it cost $1,000. So the Peace Corps representative took a picture with this older hunter and his rifle. It’s kind of cool, and kind of funny.

Q: What were the predecessors to crowdfunding and Kiva that showed the way and made you believe this was possible?

A: One person is Geoff Davis. He’s on my board, and the President and CEO of Unitus. Another is Reid Hoffman, CEO of LinkedIn. Craigslist, Wikipedia, Digg, Facebook – these are sites that inspire Kiva. Owned by the user community. We’re trying to create a feel at Kiva that it’s a public good. When you go to Craigslist, you don’t think it’s about a corporation. It’s owned by the people, not the staff. To whatever extent we have the same vibe, that’s what we’re trying to do. Wikipedia is another great example.

I don’t know that we’ll ask lenders help us improve our platform. Open source doesn’t work as well for microfinancing. Lenders need to feel that information is secure.

But we have a translator program, that is kind of open source. We have 50 translators who log in from all over the world and translate the site for free. With our translator log-in system, translators can get a special log in and that’s a definite Wikipedia style dynamic. Our translators are in Asia, Africa, all over America. At night, they might log in and translate a few businesses just for fun. It works so well that I don’t even think about it. Without it, it’d be a lot more difficult to scale businesses. It’s a neat way to volunteer, and I think they root for the businesses that they help translate. It’s not monetary, but it’s a contribution of expertise. And they get their name on the site.

Q: Any ideas in terms of moving forward into that direction?

A: We’re adding a ton of social network features to allow user base to connect with each other. We’re working to integrate mobile phones in the mobile world so that people can use the site from Africa, etc. We only have two software developers so we have to make improvements one by one for now.

Q: Nichols Kristoff from the NYTimes called Kiva “D.I.Y. Foreign Aid?” What do you think of that?

A: Kiva gives you the chance to feel like you created a portfolio, that you are a small foundation creating a portfolio of loans. Hopefully it’s the kind of feeling our lenders get. It’s a double-edged sword when you’re a rich person in a poor area. It’s the power dynamic, for better or worse. You feel like you can make a transformation in someone’s life. It’s a feeling of power. For better or worse, we’re helping people feel that way.

Q: How has Kiva changed your life?

A: It's been a big journey. A couple years ago I was writing software for TiVo. Now, I lead a team of 12 people, traveling around the world, dealing with the press. I have to be a lot more social and outward facing than I have ever been. I love every part of what I do. Every day I wake up and I'm very excited to be me. There’s a lot of excitement around the office. Every day is an adventure.

Article by Clint Schaff. Original available at

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