Nonprofit micro-loan site Kiva.org is hoping a $1 million loan from LinkedIn’s Co-Founder Reid Hoffman will allow 40,000 people to give away $25 each.
“Kiva has been really successful in that 725,000 people have signed-up and made a loan. That is awesome in the philanthropic context, but not if you look at bigger issue,” said Premal Shah, president of Kiva.org. “There’s 2.6 billion people on the planet who are unable to get a loan from a formal source, they have to go where there are village money lenders.”
These free trials will work as usual loans do. Loaners choose a borrower — individuals, families, groups, schools or other organizations — to give the loan to. The borrowers will pay the sponsor back — in this case, Hoffman. All loans are meant to be paid back without interest to the lenders. Though borrowers will pay interest to Kiva’s field partners in worldwide regions to cover costs of distribution and financial literacy education.
Since the promotion launched on Monday, nearly 27,000 $25 loans have been given away by new users to various causes. There are over 13,000 free trials still left to give away. The historical repayment rate is 98.91% with an average rate of 10 months for a loan to be paid back.
There’s a huge dropoff between people who love the concept of the micro-finance platform and the number of users who have actually loaned money. Loans of $25 or more are targeted to help very poor households or low-income individuals get on their feet. The solution here is to let individuals experience the joy of making a small loan to an individual, family or group trying to lead stable lives. Taking a hint from successful Internet companies like Zynga, PayPal, LinkedIn and Skype, the company decided to use the “freemium” model of letting people try products for free. Some users eventually upgrade to paid versions of the product.
Hoffman, a Kiva board member and a leader in the initiative, wants to get users on board with this worldwide initiative.
“[Hoffman] likes to see that we empower people to invest in themselves,” Shah said. “Kiva is more sustainable than other charities. Its not giving a man a fish or teaching a man to fish. The working poor knows how to fish. They need money to buy a boat and a net.”
Kiva.org is set up so users can search through profiles of borrowers looking for loans. Each person or group includes his or her personal story, pictures, amount needed for specified tasks, amount raised and the date they hope to have loans repaid. A quick registration through Facebook will ensure a donation in under five clicks.
Kiva was one of the first online micro-lending platforms on the Internet in 2005. Since then it’s raised nearly $300 million for entrepreneurs from rural cattle farmers in Kyrgyz Republic to women in Peru who make their living by selling candy at bus stations.
Shah wants to see a ripple effect in global giving from this initiative. Early analysis of new users who have donated to projects on Kiva since the free initiative show that one in ten people have signed up to help fund more people.
“I do think there will be a huge ripple effect. When a user make a loan to someone who is in need of capital. Every month they will get updates and repayments. They will see how simple and easy it is. You can recycle $100 over and over.”
Pan, Joann. "725,000 Loans Granted By Kiva, 2.6 Billion To Go" mashable.com. 15 March. 2012. Web.
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