Kiva is a non-profit organization that connects people to micro-lending institutions around the world. Although there are some borrowers in the United States, most of the loans are for very small amounts in poor countries. The goal is to provide credit to people who have no access or don't qualify for regular lending sources. Since it was founded in 2005, Kiva has loaned over $657 million with the help of more than 1.25 million lenders.
Lenders can browse through hundreds of stories of “entrepreneurs” and decide which businesses they want to fund. They then decide how much they wish to loan. The money is provided at no interest to local micro lending institutions which collect the payments to repay the loan. Micro-lending institutions do charge hefty rates, which are required to cover defaulted loans. Typically, Kiva only covers 30% of the loan.
Borrowers don't have to wait for individual lenders to invest in their projects. By the time the story and pictures are on the internet, the loan has already been paid out. Therefore the cash funded by the micro-lending company are not necessarily used to help the chosen entrepreneur. However, repayment is tied directly to the chosen borrower. If the borrower does not make payments, the lender may lose money.
Interest rates range from 20-40 percent, depending on the country, and the policy of the local micro-lender. Lenders do not receive any interest for the money they lend. However, the repayment rate for Kiva loans is higher than 90% so risk is relatively low.
Micro loans are usually for amounts of $1,000 or smaller, although larger are available. The Kiva Zip program operates in the United States and gives qualified entrepreneurs loans of up to $5,000 to start or expand their businesses.
Kiva operates throughout the United States and internationally.
To apply for a loan, borrowers must request through a participating micro-lending company. The micro-lending company determines eligibility based on its own approval policy. The funds are disbursed by the micro-lenders, which then takes pictures and write about the “stories” of their borrowers and sends them to Kiva in the hope of getting backing from individual lenders. Although the funds given by lenders are usually not allocated directly to the chosen borrowers, these funds do provide micro-lending companies with additional capital and reduce the cost of loan defaults.
Kiva is probably the most successful micro-lending non-profit. By putting crowdsourcing to work, Kiva has become the eBay for microcredit. Every single dollar “invested” by lenders goes to help borrowers. Kiva doesn't take a cut and doesn't charge local micro-lending partners any interest payments. It can do that because it doesn't pay lenders any interest on their capital.
The best case scenario for lenders is they receive their money back, which they can choose to either reinvest, withdraw, or donate to Kiva. The only catch is that borrowers do have to pay high interest rates to the micro-lending institutions Kiva, even though Kiva does not charge any interest or commission.
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