With the reluctance of some mainstream banks to make certain small business loans, the market in the U.S. is ripe for microlending—at least that's what Premal Shah, president of microfinance site Kiva, says. In fact, it received an entire segment of its own recently on ABC News.
Kiva is a person-to-person lending site like Prosper and Zopa where the idea is to allow individuals to find other individuals in need of small loans they normally could not receive from a bank. However, the emphasis of Kiva is on making small business loans. The organization works with a stable of microfinance partners who make available qualified entrepreneurs to individuals who wish to lend to them with no interest.
San Francisco-based Kiva built its reputation overseas, having made millions in microloans in over 40 countries. Shah told ABC News that it was never his intention for his nonprofit company to make loans in the world's largest economy. However, after the bad turn things took over the past eight months, the U.S. could very well be ready for a boom in the kind of service Kiva offers.
Kiva went live in the U.S. on June 10. It is teaming with microfinance organizations ACCION USA and The Opportunity Fund to enable its business model here. It is starting with 45 small businesses in Boston, New York, Miami, Atlanta and San Francisco, according to ABC News.
Individual lenders visit the Kiva site and can examine the list of entrepreneurs. They can then make contributions in $25 increments using PayPal or a credit card. Kiva collects the funds and passes them along to one of its microfinance partners. The partner then distributes the funds to the selected entrepreneur. In some cases, the Kiva partner organizations provide the small business owner with training and other assistance to help with their chances of success. The entrepreneur then repays the loan over time. Repayment and other updates are posted on Kiva and e-mailed to lenders who wish to receive them. Once the lender is repaid, he can either relend to someone else, donate the funds to Kiva to cover the nonprofit's expenses or withdraw the funds. An impressive 98 percent of entrepreneurs repay their loans, according to the Kiva website.
Shah maintains that funds are still needed more desperately in poorer countries, but is curious to see how Kiva's U.S. experiment plays out with the ailing economy. He told ABC, "It will be interesting to see if someone from South Central Los Angeles will be able to get a loan on our site more quickly than a small business in south Sudan."