Monday, December 4, 2006
Web 2.0 and Microfinance
At Barcamp Bangalore yesterday, Siva Prasad presented on applying the Web 2.0 model to microfinance. The discussion rambled a fair bit as everyone who knew anything about microfinance tried to get their voice heard, with topics ranging from how microfinance is overrun by scam funds to how mainstream finance institutions are elbowing their way into the scene (I did my bit of hollering too).
To Siva’s credit, he managed to stay on track, describing the parallels in social structures in microfinance and Web 2.0 and how they may be potentially merged. This didn’t go down well with the crowd, who couldn’t accept that a borrower so poor as to be satiated with a Rs 3000 loan would get onto a website and “network” with potential lenders. Siva presented examples, but I came away feeling this was yet another frothy idea that wouldn’t survive reality.
So much for dismissal.
This morning my randomised podcast queue turned up an interview with Kiva cofounder Premal Shah on Venture Voice. Kiva was one of Siva’s examples.
Turns out Kiva is a front-end to several microfinance intiatives (MFIs) around the world. You can go to the site, look up profiles of borrowers along with the MFI representing them, and loan money. Lenders do not earn interest and return of the loaned money is not guaranteed, though Kiva has had 100% returns so far. There are no transaction charges. Kiva has a special deal with PayPal to this effect, and itself takes no cut, instead surviving on the interest earned and on explicit donations by lenders. (US taxpaying donors get a deduction as Kiva is a 501(c)(3) status charity.)
Does this work? Kiva keeps lenders updated on progress made by borrowers, but is this a sufficiently strong incentive to bring lenders to the site, given they earn no interest? I’m curious. I registered on the site and loaned $25 to a farmer in Uganda, thereby upping his request fulfillment to 90%. I’m going to follow up with a similar amount for the next few months and see how it works out.
In the interview, Premal Shah says that they’d like to offer a floating interest rate in future. If this happens, it’ll be very cool.
Arun A — Dec 4, 2006 6:03:46 PM — # ↩
Fascinating. Yeah, I agree - the zero interest thing is kind of stymying to attract lenders, but would be great to see it work. If you get to know more about this, do write about it.
Ashok — Dec 5, 2006 2:54:20 AM — # ↩
An interesting idea. Though I am not sure about long term sustainability, since it seems to have dotCom sort of model of signing up as many users as possible (which could possibly flop, if interest flags, or the next big philanthropic idea comes out...)
I think at some point of time, it would make sense for them to take larger donations to finance large scale projects (on the lines of a proper lending institution....) - they could charge higher interest rates on these large loans to bank roll the smaller microfinance interest free loans - that might be more self sustaining.....
shivp — Dec 7, 2006 5:38:37 PM — # ↩
Hi Jace, I am glad that my presentation in someway made you to lend to a farmer in Uganda. Even I felt that the discussion had an active audience participation may be thats what barcamps are meant to be.
Yup..its interesting to see how these models will evolve.. I am just waiting to see how microplace.com will come up..since they want to do the whole stuff commercially!
premal shah — Dec 8, 2006 1:43:26 PM — # ↩
hi
hi there - this is premal from Kiva...just wanted to say thanks for the post and for trying out the service...let me know what you think at some point (you can contact me through the site). premal
Kiran Jonnalagadda — Dec 9, 2006 12:01:06 AM — # ↩
Premal, hi. Thanks for dropping by. I'll give it a few months and let you know how it goes.