Belfast Telegraph

Wednesday 17 September 2014

Could micro-financing kick-start the economy?

Golden Gate Bridge in San Francisco where micro-financing website Kiva is based

In the midst of a global recession, is it too obvious or perhaps unrealistic to think that making a small loan to an entrepreneur or business in need, may make a huge difference?

We turn to the United States and San Francisco where the increasingly popular micro-financing website Kiva ( www.kiva.org ), has changed its mission to tackle America’s growing economic problems.

Kiva which averages one loan every 12 seconds, relies on crowd funding to make its loans. People visit the website, review business plans and commit as little as $25 to the entrepreneur.

The money is then pooled between a number of investors for loans that typically range from $200 to several thousand dollars. The lender receives no interest in return, but ideally is paid back the principal.

Since 2005, Kiva has raised more than $75m from 500,000 people in over 44 developing countries.

On June 10 however, Kiva decided to branch out and provide the option of lending to struggling US entrepreneurs, who can’t secure traditional loans because of a bad credit history or no business experience.

Kiva had not set out to raise money for aspiring businesses in the world’s largest economy. But due to the reluctance of US banks during the past nine months, Kiva.org was forced to reconsider, said Premal Shah, Kiva’s president.

This change in emphasis however has been met with much opposition. Led by Tom Behan the group who named themselves “Unhappy Kiva Lenders” has hit out at Kiva management. They believe that in lending to entrepreneurs in the US Kiva will be taking away loans from potentially more worthwhile recipients in developing countries.

From the initial discussion of the US pilot and in response to the criticism, Kiva and more specifically CEO Matt Flannery have argued that the addition of US loans will draw more lenders overall. In turn allowing the poor in the Unites States to benefit, without anyone in the developing world losing out.

This theory, for me unsurprisingly, was further supported on July 15 when Kiva announced to its community what they had observed since June 10 ( www.kiva.org/about/inside ). It turns out that the US pilot has attracted more “new money”, drove an increase in new user sign up and more importantly attracted new lenders to all countries.

For me these results are very significant and highlight two key points. The first being, that in expanding its offering, Kiva is not jeopardising its original mission or taking away money from entrepreneurs in the developing world.

Secondly and bringing us back to the original question, people are willing to embrace and participate in an alternative form of economic recovery, far from bank or government involvement.

With this in mind however, it would be foolish of us to think that perhaps micro-financing alone is the answer or in some way a miracle cure for our economic problems. But with sites such as Kiva lending as much as $1.7m last week alone, it is hard to ignore the current economic impact it is having and potential impact it may have in the future.

If nothing else I feel that this is another important example and reminder that social-networking provides a more influential role that merely status updates and photo sharing.

Perhaps we are one step closer to a Belfast entrepreneur appearing alongside a Peruvian farmer vying for the same loan.

Mark Johnston is business development manager with Invest Northern Ireland in San Jose. He can be contacted at mark.johnston@investni.com

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