business development economics generosity poverty wealth

better borrowing – peer to peer microfinance

Last week I wrote about peer to peer lending. Last year I wrote about microfinance. Today I want to put those two together.

Lending without banks, facilitated by the internet, is a radical development for borrrowing. So was microfinance, the idea of lending small amounts of money to the poor. Put the two together, and you get de-institutionalised micro-loans, those with a little extra money making small loans to those with no access to capital. You get

Working through existing microfinance networks, Kiva profiles entrepreneurs on their website, with information about the people involved and their business ideas. Prospective lenders can then select a business to support, make a loan, and are kept them up to date with progress. Over 6-12 months, the lender either gets their money back or re-loans it to someone else.

To test out the site before I recommended it to you I just made a loan to a Nigerian market trader called Monday Nwanfor, so he can buy rice and beans for his business. It took about three minutes to do through Paypal. So far repayment rates are over 99%, but so that nobody loses their money if something does go wrong, the loans are distributed across a large number of donors. I’ve just put in a percentage of what Monday needs – if you’d like to top it up, check out his page and make an offer.

So far Kiva has distributed over $19 million in this way, through thousands of supporters. The non-profit organisation was started by Matt and Jessica Flannery in 2005, and it’s come a long way in a short time. See the interview with them below for more on their story.


  1. i’m a fan if kiva’s business model. it’s almost ingenious. I was wondering about two things though, perhaps your could answer them:
    1- how does kiva actually hand over the money to the poor?
    2- is there any involvement of interest in these loans?

    1. It is, isn’t it? I have a bunch of loans in their system, and they come up for re-dispersal every couple of months.

      Kiva distributes the money through partners in the field, so they’re just a funding agency. The actual loans are negotiated through small on-the-ground co-ops and microfinance groups, and Kiva just provides the capital.

      As for interest, no, Kiva is a charity and doesn’t need to. Partner organisations do however. A small amount of interest protects the invested capital from depreciation, which means more loans in the longer term with the same money. It also covers the administrative costs involved, and that is standard practice for microfinance.

  2. thanks for the prompt reply. i read up on kiva too and learned they disperse $25 in up to 40 projects. So that’s less than half a dollar being allocated to one project. i’d just like to clarify another small issue – what do you refer to when you mention partner organizations?

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