What will a self-sustainable Kiva look like?

[Guest]

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[AccountAbility]

I am finally getting into Muhammad Yunus’ most recent book, “Creating a World Without Poverty”, subtitled Social Business and the Future of Capitalism.  In this book he advocates a new form of enterprise to fill a real gap in available structures.  He labels these  “social businesses”.  He points out the weaknesses of the structural choices available to such an enterprise as Kiva.  While I think the non-profit choice was the best available to Kiva, Yunus points out the weakness of this structural choice to adequately address the goals intended.

He proposes a hybrid entity where capital infusions from investors are used primarily to meet a social good. Profits are used to grow more efficient in delivering that social good or even to expand into new areas of social good and return original capital to investors.  That hardly encompasses the scope of his discussion, but perhaps states the essence to explain where I am coming from.

What will it take to make Kiva self sustaining and when that is achieved what will it look like?  One of Kiva’s stated goals is to come alongside emerging MFIs and assist them to become self-sustaining.  But what about Kiva itself?

Right now, as I understand it, Kiva is kept afloat by three things.  First, Lenders (sometimes) add a donation to Kiva when they lend.  Second, Kiva  receives grants from some large foundations to provide the growth of infrastructure.  Third, Kiva makes interest on float as monies pass through between MFIs and lenders.  There are ancillary additions, such as the Kiva store, but unless I am missing something, that’s how it covers its expenses.

Is Kiva a charity that will always depend on donations to cover its shortfall, or is it one of these “social businesses” that ought to be self sufficient after a time?  It does seem strange to think about giving interest to lenders so long as Kiva is simultaneously asking for donations– at least from the same group. 

But maybe individual lenders are really two groups.  The first group are lenders, plain and simple.  The second group are closer to investors in a social business.  They strongly desire to “invest” by donations and also (either/or or both/and) invest by leaving any interest they might have made on the loan behind as an investment in Kiva.   Maybe the first group as lenders should be getting some  interest.  The second group as investors in a social business should be treated as shareholders, with the buy-in and solid communication that such entails.

Its not important what these groups are called.  If “investor” freaks people out because it reminds them too much of what’s wrong with the capitalistic system, other terms can be used.  Yunus has no problem with the word in the context of his “Social Business”.

I think many on Kiva Friends are closer to the second group.  Has anyone had thoughts along similar lines?

Dan

[RichardF]

Hi Dan,

Interesting topic.  I'm just thinking out loud here...

How is Kiva conceptually any different than an MFI in terms of sustainability?  They both offer a financial service and they have to cover expenses at a sustainable level.  Ultimately, I believe a social business has to shift the responsibility for viability from its benefactors to its beneficiaries.  In this case, I believe Kiva's primary direct beneficiaries (customers) are the MFI's.  Kiva needs to find a way to become sustainable from the service fees it charges MFIs, plus whatever investment income it has from sources like contributions, float and endowments.  In the long run, endowments might be able to subsidize a good chunk of the expenses they would have to charge to these MFIs, still making the cost of money to MFIs and their customers (the entrepreneurs) very attractive.

[Canadian Here]

Dan:
I prefer to think of my "investment" as one in human capital, rather than in a business. 
Lorna

[AccountAbility]

Thanks for your thoughts, Richard.  Yes, the MFIs are part of the equation and definitely need to be factored in. 

Perhaps Kiva needs to set the "normal" fees or interest rates for getting Kiva monies, and then use another mechanism to subsidize these costs for emerging MFIs, either through contributions or otherwise.

An interest rate would parallel other money sources for the MFIs, but the Kiva concept is a bundle of services and requirements, much like a franchise, so a fee would reward those MFIs who took the most advantage of Kiva monies.

Would the MFIs make up part of the investor group, i.e. the shareholders?

Dan

[Ulli]

I agree with Richard, that Kiva will have to charge some fees or interest in order to become self-sustainable.
Reading the information for the field partners on the Kiva website, I got the impression that the 0% interest that Kiva advertises is like a plea to get Kiva into the game of microfinance. Once Kiva has become an established partner in the microfinance world, it might be able to charge 1 or 2% interest in order to become independent of donations.
As for helping emerging MFIs; I don't think this is longer an issue since the requirements for field partners listed on the kiva website do not really allow for brand-new MFIs.

In order to become a Field Partner with Kiva, a microfinance institution must, at a minimum:

    * Serve at least 1,000 active borrowers with microfinance services
    * Have a history (at least 2-3 years) of lending to poor, excluded, and/or vulnerable people for the purpose of alleviating poverty or reducing vulnerability
    * Be registered as a legal entity in its country of operation
    * Have at least 1 year of financial audits
    * We also prefer an MFI have a profile on the MIX Market )

[cpbailey]

Ulli,

Looks like Kiva is playing with the Big Boys now!

Colette

[RichardF]

Hi all,

For some reason, the topics here on Unitus on Poverty & Microfinance never went anywhere.  The president and CEO of Unitus, Geoff Davis, still is on Kiva's Board of Directors. Unitus has a very interesting strategy to help eliminate global poverty through "Social Venture Capitalism" :

OUR STRATEGY: Social Venture Capitalism In summary, there are four phases of the Unitus Acceleration Model:  -   Selecting and partnering with the world’s highest-potential emerging MFIs -   Structuring investments that enable our MFI partners to create sustainable capital foundations -   Providing capacity-building consulting services to remove our MFI partners’ growth constraints, helping them become for-profit banks for the poor -   Exiting partnerships after our MFI partners achieve scale and have the capacity and financing to support their continued growth

I would assume Kiva has some sort of shared strategy with Unitus, such that Unitus helps build MFIs (which also are more than just lenders, of course) then moves on to the next one, and Kiva plays the role of the ongoing source of low cost money.  It still seems to me that the basic strategy for building Kiva to sustainability would be very similar.  The functional difference being that Kiva would become a for-profit money source for MFIs.

[Ulli]

Looks like Kiva is playing with the Big Boys now!

Yes, I agree. I believe for exactly this reason the introduction of the BRAC MFI partners was a big step for Kiva.

[AccountAbility]

Since Kiva is already a nonprofit, perhaps the way forward is to begin setting up for-profit subsidiaries which provide the various services that further the goal. Whether they are called Social Businesses (ala Yunus) or not, the goal would be to provide services which allow local MFIs to tap into the power of the internet and its ability to reach a large pool of lender monies at relatively low cost.

When referring to emerging MFIs, I don't think we are talking about new or tiny MFIs as much as we are talking about MFIs who have their act together but have not yet reached self-sustainability.  Matt referred to these as being in "the long tail".

Dan

[RichardF]

Since Kiva is already a nonprofit, perhaps the way forward is to begin setting up for-profit subsidiaries which provide the various services that further the goal.

"Just recently, Kiva formed an LLC subsidiary. A "for-profit", if you will. Let's let that sit in. Ahh."
- Matt Flannery (http://www.socialedge.org/blogs/kiva-chronicles/archive/2008/03/01/escheat-me) 

p.s. I cross-posted some thoughts about this at Marley's topic, Kiva needs input re: unused credit.