Trading fruit in Cuzco market. Selling mobile airtime in Nairobi. Embroidery in the Guatemalan highlands. These are some of the vibrant images I have of ‘private sector activity’ around the world. So when we say ‘Business Fights Poverty’, we should remember that small businesses are the heart of the issue in many communities. Commerce and business can and must make a difference - but it often happens person-by-person, trader-by-trader.
Of course there’s a role for multinationals, and through Nomadical, I spend a lot of time trying to help them understand local realities and develop appropriate brands and products. But there are still a huge number of smaller businesses which can be left untouched. So, how can we engage more directly with those individuals and groups, the world's working poor, real people in real places?
Well, one way – which has been discussed before on BFP – is through the creation of peer-to-peer finance linkages, specifically through microlending platforms such as Kiva.
Microlending - why do it?
Fundamentally, I believe people can and should do things for themselves - rather than have it done for them, or to them, by others (charities, the state, 'experts'). So there’s an instinctive sympathy with the idea of supporting people trying to make their way for themselves, or with a group of their neighbours.
Microfinance has emerged as one model for supporting the private sector. I won’t rehearse the arguments in favour, and there are some important questions – around interest rates, over-borrowing, ability to reach the ultra-poor, and proof of impact. Some of those have been explored by people like Anis Chowdhury. And as Nita Nehru pointed out, microloans need to be seen as part of a range of micro-products (e.g. savings and insurance) which together provide stability, capital, and protection. But for me, microfinance is a legitimate tool.
Kiva – a summary
My quick attempt to summarise Kiva (their website obviously has a more thorough explanation):
Kiva is a web-based platform for funding loans to entrepreneurs (individuals or groups). Lenders fund recipients ($25 at a time), for loan periods of 6 months and upwards, receiving repayments back to their own account (for re-use or withdrawal). Kiva sends the funds to microfinance partners on the ground in each country, who are the people who distribute and administer each loan.
(It’s not the only such approach – for example, Care International’s www.lendwithcare.org is similar, but with a more limited range of partners.)
The Lender Experience
This post was intended to talk about how it feels to be a lender, specifically through Kiva. Why do it, and why do it through Kiva? As someone with a large number of loans through Kiva, I’ve some experience on this - though clearly other lenders may have different motives and may use Kiva in different ways.
I accept that the grounds for such a post may be questionable - this shouldn’t be only about making the lender feel warm and satisfied, providing cover for an unsustainable western lifestyle. Surely this should be about the benefits to recipients, not to the lender?
The point, though, is that (as with any organisation or brand) if the participants don’t see or feel benefits, then they aren’t going to get involved. So there need to be perceived benefits for the lender too, otherwise the entire model falls down. So I’ll largely leave aside the question of ‘what’s in it for them?’ – others are better placed to comment on the efficacy of microlending through Kiva or other platforms. And instead, I’ll try to unpack ‘what’s in it for me?’ – for the lender.
Three main areas stand out in the lender experience - control, connection, and retention (or reversion). The table below captures some of the ways in which they are manifested (and also flags up some potential questions or caveats that should be recognised):
Each of these three benefit areas is a mix of the rational and the emotional. It feels like I’m using my discretion, building links, and also retaining ‘ownership’ of the capital. I feel that I can see and choose where the money is going, without losing that money forever. It’s probably fair to say that it’s primarily emotional (crudely, ‘I feel good’), with sufficient reasons-to-believe to enable me to rationalise that feeling (‘I feel good because…’).
Should that make me uncomfortable? Surely the fight against poverty needs to be done on a rational, objective basis...
Well if this is mostly about some kind of emotional benefit, it’s no different to the vast majority of decisions we make. Ultimately, politicians, business leaders, and consumers do things in order to ‘feel better’. Without providing a mix of emotional and rational benefits, Kiva would not generate the required support from potential lenders. And the model would not work.
If you feel small businesses can be important in improving lives, if you see microfinance as a valid part of the toolbox, and if you value control and interconnection, then Kiva may be an answer. If you want to use your capital for good, but not lose it for good, then loans, rather than donations, may work for you.
And for a limited period, Kiva are offering free trials – just click here