In 2004, while on a trip to rural East Africa, a young computer programmer from Silicon Valley had an idea for a way his friends back home could participate in helping provide tiny capital investment funds to the small-business entrepreneurs he was filming. At the time, it seemed to many like a wholly impractical idea, even a little crazy. Turns out, not so crazy: by 2009, five years later, well over 600,000 individuals had made microloans through the Kiva web site, with a full repayment rate of more than 98 percent, to more than a quarter of a million individual entrepreneurs (more than 82 percent of them women—shades of network marketing!), and the total volume of all those tiny microloans had topped $100 million. One of the most striking things about Matt Flannery’s extraordinarily successful project is that it has proven to be a dramatic demonstration of the power of conducting business on a person-to-person basis. — J.D.M.

Where did Kiva come from?

It began in 2004 as an idea. I was working at TiVO as a software developer. I guess you could say, my life at the time was devoted to helping people pause live television. I’d recently gotten married, and my wife Jessica was keenly interested in microfinance. She decided to take some time off to go work as a volunteer in East Africa. This was a bit of a shocker to me.

After a little while, I went over and joined her in East Africa, but before I did, while I was still back in California, she was sending me stories about the entrepreneurs she had met, with whom she was keeping in touch via text message, phone call, blog entries and email.

I was struck with how easy it was for us to stay in touch. It was amazing, how connected we could be to these people in rural Africa.

What also struck me was that their stories were very entrepreneurial, and quite different from the stereotypical view of African life I’d been given by media and advertising, that it is only about starvation and war and disease.

“They’re hopeless, they need our help because they can’t do anything for themselves…”

Exactly. It makes sense that people who are trying to raise money would be telling us that story. But when you meet people and they become your friends, and you see they’re just normal people like anyone else, all those stereotypes quickly break down.

I did a lot of filming while I was there, walking around and visiting small business owners who were, for example, building a store in a village for the first time with a $500 loan.

I tend to have hair-brained schemes, so I started thinking, “What would it be like if we started a little investment program in this one village?” We could take these loans people needed and divide them into shares, and then sell those shares to our family and friends back in Oregon and California, sort of like a little stock market.

Doņa Josefina Ordonez from Guatemala
Doņa Josefina is 37 years old and is single with three children. When she was 3 years old her older brother accidentally cut off her hand with an ax, but Josefina is still able to weave and happily says that she functions the same as someone with two hands.  She and her nephew have been making sandals in their own workshop for four years and she needs capital in order to buy materials like leather and rubber soles.

Impossible. Would never work.

Yeah, I had the vague thought that it wouldn’t work. But the more I looked at it, the less my tangible objections held up. I could see that these people were getting loans and paying them back. So that part seemed to work. I was wiring money back and forth from Eastern Uganda to San Francisco, and that worked. They had an Internet connection there, so that was working. I knew I was taking pictures and shooting film there, so they could certainly take pictures of what they were doing.

I just couldn’t see why it wouldn’t work.

Of course, once I got back to the States and started talking about it, I received a lot of feedback that it wouldn’t work—it wasn’t feasible for this reason or that reason, or it was illegal. But I couldn’t see that there was anything wrong with the idea.

So you got started?

Yes. At first Jess and I worked on it as a side project. We didn’t treat it as any kind of major business goal, or write up a big business plan and try to raise a lot of money. Instead, we just started with a few people we knew over there.

Over the course of two years, it attracted more and more attention and people began believing in it. A lot of my friends and other Silicon Valley people got behind it and donated a lot of energy. Before long, I quit my job and started taking it seriously. That was about five years ago.

What was it like dealing with such tremendous growth?

We’ve had to change a lot to accommodate that hypergrowth. Instead of just working with the one village, we started working with a number of NGO’s for the poor in many different countries and the small banks, or MFI’s (microfinancial institutions), that raise money for borrowers in certain communities.

These are organizations that know how to lend money to poor people and are socially-focused. They will post the loan profiles of people in their communities on the site so that people can find them and fund them. So far, that’s expanded to working in about 50 countries, and we’ve raised over $115 million in debt capital.

Wasn’t there a Nobel Peace Prize for the Grameen banker, Muhammad Yunus, around that same time?

Yes, and that was a big turning point for Kiva. That was in 2006, and it generated a lot of publicity around us. [Yunus’s Nobel Prize was for innovations in microfunding—Ed.] We were very lucky, in that at the time, we were positioned as the website where you could go and participate in microlending. That helped us quite a bit.

It seems as though the idea of microlending caught a lot of people’s imaginations in all kinds of ways.

In the U. S., there’s a lot that is counterintuitive about lending money to the poor. When you first find out that poor women in developing worlds are able to pay back their business loans about 97 percent of the time, that gets people’s attention.

Kokou DZIDE from Togo
Kokou DZIDE is a married man who lives in Adidogome. He has six people to support with his tailoring business. He started doing this work in 2002. He is requesting a loan to buy a new sewing machine and supplies to improve on the clothing he makes and to serve his customers. With a new machine, he is going to do better in his sales and earn more money to support his family.

It strikes me that back in 2004, with you working at a high-tech firm in Silicon Valley and Jessica in East Africa, the epitome of an undeveloped area, it would have seemed so unlikely that these two totally contrasted situations could possibly meet in any constructive way. So the counterintuitive images are built into your story from the start.

It’s really exciting to bridge those two worlds and realize that they aren’t really that far apart anymore. You’re doing business with someone in Uganda who has probably never been outside a ten-mile radius, and through the Internet you can start lending money to them in real time. It’s the first time in history when that kind of transaction is possible.

What fascinates me about this story is the consistently high rate of repayment—the fact that it not only works, but it works very effectively.

And you see this happening all over the world.

Over the past five years I’ve been so blessed to get out of my cubicle and travel a lot to places like Cambodia, Nicaragua and East Africa, and as you visit these places you see something happening universally: these low-income people, and especially women, really do have a very high rate of paying back these loans. And they take it very seriously. They put their reputation on the line, because their reputation is typically all they have to put up as collateral.

Does your experience with Kiva exemplify larger shifts in our traditional business values, such as bigger is better?

I think there are some great lessons to learn, and certainly some that I’ve learned personally.

If you can reduce as many barriers as possible between people and let them do business on a personal level, you find there are a lot of advantages to doing that. Our lenders are willing to lend at lower rates than any commercial institution, and to be flexible with their repayment rates and forgive losses at times.

This is not just a nice little charity idea, it’s actually something that is becoming quite sizable. The amount of capital being put into these more personal transactions, not only with Kiva but also with other businesses, can really grow significantly over time.

Another thing I’ve learned is that people are generous, and that when they’re able to see where their money goes, they’re much more generous than I’d ever imagined before.

I was a little jaded when we started Kiva. It was our small, personal project, and I never imagined that so many others would get excited about it. I’ve been blown away by how people have embraced the idea.

You said something once about far-flung financing being a good metaphor for spiritual connection. What does that mean?

Well, I’m kind of a spiritual person, and I believe that all people are truly connected, that our actions actually affect each other, whether we know it or not. Through the Internet, we’re just able to make that connection a little more evident. It just brings to the surface the fact that people are already very connected.

With a mechanism like Kiva, we can more clearly see how our financial decisions can change other people’s lives, because you can spend $25 and see the impact it makes on someone else’s destiny halfway around the world.

Eim Sarin from Cambodia
Eim Sarin is 36 years old and the mother of four children. She owns a small restaurant in Slab Ta Oan Village where she sells Chinese noodles to both villagers and visitors. Since her business is going well, Eim Sarin received a loan to buy more beef and other ingredients to cook delicious noodle dishes for her customers. Her husband is a motorbike taxi driver who can make $5 a day to support his family.

I find that transparency intriguing: it’s almost like you have next-door neighbors halfway around the globe.

We’ve been able to give our clientele a vivid sense of those other people who are benefiting from the money they’re lending. All we’ve done is post their pictures, along with a paragraph about maybe one person out of ten. Yet that small step has turned out to be quite big. It has unlocked a behavior pattern among Internet users that is very different from any behavior I have seen anywhere else.

People on the Internet want to be generous, they are craving the ability to reach out to each other, just as we did in our past, when we were growing up in small localized communities connected to real people. I think our existing economic system doesn’t enable that behavior or reward that generosity very much. It doesn’t capture that drive that we have or allow us to express it. I’m hoping that the Internet can help us get back to that kind of experience over the next decade or so.

Unfortunately, the people featured on our site are not using the Internet much themselves. If you go talk with low-income people in Uganda, you find most of them have no access to computers. They certainly don’t know what Paypal is, and they’re not able to transact financially over the Internet.

I would imagine that even in places like Uganda and Kenya, the mobile phone might create the platform for that. If people can text each other, it can’t be too big a leap to transacting financially.

Yes, I think that will definitely happen in the next five to ten years. I expect you’ll see a number of NGO’s and charitable activities that start reaching people through their mobile phones, people who were otherwise completely marginalized. I can’t wait to see the first web-based charity where you can actually donate or lend to somebody and see the money transfer directly to them through their mobile phone.

Technically, that’s actually feasible right now. I’m not seeing a lot of people doing it, but this is due mostly to logistical reasons, not necessarily technical reasons.

Such as…?

I think it’s going to be hard to ensure identity protection, prevent money laundering, and so forth. All those security issues are really tough.

That’s another reason it has been so advantageous for Kiva to work with MFI’s in the middle, because they’re very personal. They know the people on the other end, and they’re living in the community.

The primary reason they’ve been able to have 97 percent repayment rates is that they’re very hands-on. In that sense, it’s a very labor-intensive business. In Kurdistan, for example, the MFI we work with deeply knows the people they choose to lend money to in the community. They have staff who go out visiting the people and getting to know them.

When you take away that personal touch and open it up to mobile phones, allowing just anyone on the Internet to apply for a loan via mobile, it’s going to be tricky. Not impossible, but more challenging.

Truphena Anyango from Kenya Truphena
Anyango is a 29-year-old married mother of one. She lives with her husband Michael and daughter Marion in Mikindani, Mombasa, where she runs a pharmacy and sells cosmetics. She also offers counseling services to her clients in the area. With the Kiva loan, she plans to purchase more cosmetics and sanitary products in order to meet the demands of her customers.

Our readers are mostly entrepreneurs who run their own networking businesses out of their homes. In a way, so many of the principles and ideas that come out of Kiva seem so applicable. There’s an idea in network marketing that points to the power of “a lot of people doing a little bit each.” That certainly sounds like Kiva!

Absolutely. They’re all running their own direct marketing businesses, really. There’s no such thing as traditional marketing for most of these retail- or agricultural-based businesses. And they certainly all work for themselves.

We use the word “entrepreneur,” but it doesn’t quite transfer directly, because when we think of an entrepreneur here in the States, we think of someone who has forsaken the corporate life or traditional career path in order to run their own business.

But for about half the people in the world, and certainly the borrowers on our website, they never had a corporation to work for in the first place. There was no choice not to be an entrepreneur. These people are running their own store, or selling flowers on the side, or buying and selling fish, out of necessity. They often have many different business activities happening just to generate a basic income that lets them scrape by.

Do you foresee applying the Kiva concept to things beyond money, like know-how, skills, teaching and learning, other kinds of interactions that are not purely financial?

I think it’s certainly possible. I’ve seen various websites do that, or attempt to do that in different ways. So yes, I think we’ll see more efforts like that coming up in the next decade.

Transacting person-to-person teaching over the Internet is tough for us, and we’re not really doing that right now—but I wouldn’t say we would never do it. It’s just challenging. We haven’t quite cracked the nut on that one.

For instance, as I mentioned, the borrowers on our website are for the most part not using the Internet themselves. So that’s a logistic challenge.

Another issue is that they’re not necessarily looking to be taught. Low-income borrowers in the developing world typically don’t perceive themselves as needing to learn how to run their bakery. As far as they’re concerned, they already know exactly what to do and how to do it. They just need an investment.

For that matter, I’m not sure that someone in San Francisco, Seattle or Boston really knows a lot about how to help build or run a small bakery in Guatemala.

Actually, I was thinking it might go the other way—that there would be people in the States who’d love to learn how somebody in Guatemala cooks this traditional dish, or builds that kind of house, or whatever.

Now that’s more likely. Our clients are active on the Internet and they hunger for a strong connection. They want more information. They’re thirstier for knowledge than the borrowers, right now.

Where do you see things going in the future? What is your picture of Kiva ten years from now, twenty years from now?

We’ve learned that when you make things personal, you unlock a whole new type of capital that’s quite sizable and quite powerful. It’s a very forgiving, patient and flexible type of debt capital, and can be transferred from people to other people.

I think there are so many ways the world can use that kind of capital right now. Microfinance was the first vehicle that really absorbed this idea. But I think we can apply it toward so many other causes.

I think Kiva will expand from being seen as lending to microfinance to being seen as lending for social change.

There are all sorts of areas I can see us going into, such as education, so that education loans would become more and more prominent on the site. Over time it’s easy to imagine that spreading to areas like clean energy and solar projects. I see Kiva unlocking that broad kind of socially-focused, mission-driven capital.

And then, once we’ve solved a lot of these problems, we’d love to experiment more with lending directly from people to people. I can also imagine that, once the bottom billion human beings on the Earth come onto the Internet using mobile devices, we’ll be able to connect with them in a much richer and more interactive way.

Actually, I see that already starting to happen today.

Earlier you said that when you first began this project, you were perhaps a little bit jaded. You do not sound jaded today.

My life has totally changed. I’ve been able to travel the world and make friends in so many different countries, from Japan to Cambodia, all over Asia and Africa. My mindset has been completely elevated from a place that was really small, when we started Kiva, to feeling that the opportunities are endless and the future is a tremendously hopeful place.