Kiva Zip: Kiva’s New P2P Pilot

Recently Kiva launched a new pilot program called Kiva Zip, which is testing new approaches in direct P2P lending, rather than the traditional approach via MFIs.  There are already companies out there like Zidisha who are already doing this, so it’ll be interesting to see what Kiva comes up with.  Here’s more about the program:

 

What is Kiva Zip?
Kiva Zip is an innovation of Kiva that will test new approaches in direct person-to-person microlending.

What is Kiva hoping to accomplish with Kiva Zip?
Kiva Zip (Zip.Kiva.org) shares the same mission as Kiva.org – to connect people through lending to alleviate poverty.
Kiva Zip is testing new ways of realizing this mission with the goal of expanding our reach to unserved populations by using new technologies that also drive down costs to the borrower.

How is Kiva Zip different from Kiva.org?
Since its launch in 2005, Kiva’s mission has been to alleviate poverty by connecting people through microlending. By working with a global network of microfinance institutions (MFIs), Kiva.org has enabled people like you to make over $250 million in loans to nearly 700,000 borrowers around the world, with a nearly 99% repayment rate, as of December 2011.
Kiva Zip is testing new ways of realizing this mission with the goal of expanding our reach to unserved populations by using new technologies that also drive down costs to the borrower. Here’s a little more detail about each of these differences:

Unserved populations
The Kiva Zip pilot is intent on expanding financial access to borrowers who cannot otherwise be served by a bank or microfinance institution. This means Kiva Zip borrowers may have a different profile from Kiva.org. For example, in the U.S. it is becoming apparent that a lot of start-up businesses currently lack access to capital, and that these are prime candidates for Kiva Zip loans; whereas most of the U.S. businesses on Kiva.org are already established.

Use of new technologies
Through the use of technology, Kiva.org was the first-ever microlending website to allow any individual, with a computer and a credit card, to lend money to a low-income entrepreneur halfway around the world.
Kiva Zip is attempting to take the use of technology to the next level, such as mobile and electronic payments that enable the direct transfer of funds between lenders and borrowers. In the Kiva.org model, these payments are managed through Kiva’s microfinance partners. Kiva Zip still partners with organizations and individuals that work closely with borrowers (these are called “trustees” in the Kiva Zip model), but in Kiva Zip trustees never handle the loan funds.

Low cost loans
Low cost loans to borrowers is one of the main benefit of Kiva Zip being able to use new technologies to enable the direct transfer of funds. For the Kiva Zip pilot phase, Borrowers will be paying 0% interest rates. This differs from the Kiva.org model where borrowers do pay interest to the microfinance institutions in exchange for their administration of the loans, and a number of other important services that the MFI provides to borrowers (technical assistance, financial advice and training, etc.).

Increased risk to lenders
Another important difference is that Kiva Zip loans are expected to be even riskier than loans in the main Kiva model. Kiva.org has been operating for over 6 years now, and many of the kinks have been worked out over time. Because the Kiva Zip model is new, it is likely that there will be many learnings and changes as the pilot is launched over the next few months. For this reason, the repayment rate on Kiva Zip is expected to be significantly lower than the nearly 99% seen on Kiva.org today (as of December 2011). As due diligence methodologies are tested and fine-tuned, we are confident that repayment rates will continue to improve.

We are excited to begin this first Kiva Zip pilot, and we know that there will be a number of other smaller trials and experiments on the Kiva Zip website. For example, there are plans for borrowers on Kiva Zip to be able to make comments and updates directly on their own loans; different loan sizes might be explored, or displaying loan amounts in Kenyan Shillings; and the look and feel of borrower profiles will differ from those on Kiva.org. It is our hope that many of these experiments will prove successful, and we will be able to apply our learnings to Kiva.org to continue to deliver the best experience and outcome for all lenders and borrowers.

About Jerry Ostradicky

I work in Advertising Operations at Zillow, but LOVE microfinance. I'm always interested in startups, especially non-profits, reach out to me if you're working on anything cool!