Money makes the world go round!
If you have it, a lot of things work. If you don’t, a lot of things don’t.
Kiva, which means “unity” in Swahili, was founded as a micro-loan experiment in East Africa to help minority and women-owned small businesses get started.
The first loans were less than $500, as many are today in underdeveloped countries. Kiva is now present in 77 countries, has generated $1.7 billion in loans from 1.6 million lenders with a 96% repayment rate.
Although it works differently in the United States, Kiva is an internet-based crowdfunding platform where borrowers ask lenders for loans as low as $25. Kiva US focuses on small businesses that banks ignore because borrowers have low credit scores and no collateral. When these companies can find loans, the interest rates and fees are often exorbitant.
Kiva solved all of that. Of no interest. No charges. Low credit scores and no collateral are acceptable.
I met Kiva in 2020. It uses a three-pronged model with hubs, backers, and admins. The hub is the focal point with a manager responsible for marketing Kiva and helping borrowers navigate Kiva.org to get their loans online.
Funders support centers as needed to cover the $25,000 annual cost of Kiva and to pay the manager. Lenders also create matching funds, making it easier for borrowers to achieve their goals.
Because Kiva does not know its borrowers, it relies on trustees to “approve” borrowers and be mentors. Endorsed loans get their loans much more often than non-endorsed borrowers.
Self-Help Credit Union, a local minority-focused bank, agreed to be the hub. Salisbury gave Self-Help $20,000 to cover hub costs at Kiva. Salisbury has also set aside $60,000 for a matching fund. Kiva charges 10% per year to administer matching funds, so on a three-year contract this would reduce the Salisbury dollars available to borrowers by $18,000.
Unfortunately, there were a few hiccups in the first year, so the city council “suspended” the program. Suddenly the public became concerned and criticized the city council for taking money from small businesses. In all honesty, “pause” in government parlance can mean termination.
Not this time. The city council believed the taxpayer had received no return on his $20,000 investment and needed time to review the program with Kiva and Self-Help. Although three local borrowers had not reached their loan amount, the city was never informed of any borrower activity. Therefore, we never remitted our matching funds to Kiva. (The city does not match the loans. The backers send the money to Kiva, which does the matching.)
Last month, two borrowers were successful, one raising $6,000 and the other $15,000. Both have attracted nearly 300 lenders across the country. This is the power of Kiva. One of them complained publicly about not having access to Salisbury’s matching fund. Both loans received matching funds from other lenders, a women-focused fund, and Bank of America. So neither of them lost a single dollar because of the city’s delay.
Kiva will continue in Salisbury, but will not use the hub model. Kiva US was originally an admin-based model. Trustees take care of community outreach and help borrowers navigate the application process. (The hub model grew out of major cities organizing trustees.) Because Kiva charges no fees for a trustee model, the city can redirect those dollars to its matching fund.
Pete Teague has been my partner throughout this process. We create a non-governmental trust organization. Although we have a list of potential directors, we invite everyone to join. To save every trustee from having to learn how to navigate Kiva.org, we’re also creating a way to help borrowers referred by trustees.
To be clear, any borrower anywhere can go to Kiva.org and apply for a loan. Borrowers are not required to use a hub or trustee.
Finally, Kiva also has more than 4,000 “teams”, groups that provide loans. They range from 175,000 to a member and with loans ranging from $66 million to $25. When a team member makes a loan, the team gets credit. Hopefully Salisbury can organize some teams, for example the House Minority Affairs Council, colleges, churches and civic clubs.
Here’s the bottom line: If Salisbury is to help grow minority and women-owned small businesses, the pieces are in place to make the world go round.
David Post is a member of Salisbury City Council.