Interesting, on multiple levels. I predict this will be
more than a trend. Please share, in the spirit of the season. - kwc
PayPal-ing
International Development
By
Zack Pelta-Heller, AlterNet, Posted on December 15, 2005,
Benna Oboth is a widow in Tororo, Uganda, who cares for her
eight children by buying cereal grain in bulk and selling it at the village
market. Nearby, in the town of Soroti, Gregory Eliau takes care of five
children -- left to him by his brother who died of AIDS -- by buying and
selling cows. Elizabeth Omalla, a widow with seven children, is a fishmonger
who gets her fish from Lake Victoria and sells to a middleman in town. She's
hoping that soon she will be able to set up a shop of her own. These three small business owners owe their success to Kiva (www.kiva.org), a recently launched web-based non-profit
that allows peer-to-peer (p2p) microloans. Kiva's p2p network enables ordinary
people to loan small sums of money through PayPal to needy individuals without
interference from a bank or microfinance institution (MFI). For the first time,
anyone can make a loan of as little at $25 to an indigent entrepreneur in East
Africa. In only a few weeks, the rapidly expanding website has facilitated
enough microloans to fund over 30 businesses in Uganda, revolutionizing the
concept of microcredit. Making It Personal Kiva co-founder Matthew Flannery was working as a filmmaker
in Uganda in the spring of 2004, when he heard a story about a few Ugandan rice
farmers who wanted to buy a truck to deliver rice to neighboring villages.
"There are a lot of problems of distribution in Africa," Flannery
told me. "Those rice farmers didn't want to sell their rice to an
intermediary who would raise the price and give them less profit." Flannery's wife, Jessica, was also in Uganda, working as a
staff member for Village
Enterprise Fund (VEF), an organization that provides seed capital to
microentrepreneurs. Jessica put her husband in touch with Brian Lehnen, VEF's
executive director, who said the Ugandan farmers had taken out a microloan
through VEF and were repaying it steadily in increments of $50. Hoping to
extend more microloans to rural African entrepreneurs, the Flannerys returned
to the US and tapped into the microfinance trend. "I just noticed a huge surge in the popularity of
microfinance among young liberal people right now," said Flannery,
"and I wanted to get personally involved." On Kiva's easily navigable site, interested lenders can
click the Businesses tab and read about the ambitions of these
microentrepreneurs. Through pictures and mini-biographies of each small
business owner, lenders can learn how their microloans will be used and select
their loan recipient. For example,
scrolling the active businesses, you can read about Simon Okiror, who has
borrowed $500 to fund a medicine shop in Uganda. Okiror lives with his wife and seven children in Soroti,
where health centers simply don't have enough medical supplies for their ailing
patients. After selling three goats he'd raised at home, Okiror was barely able
to get his shop afloat. With his $500 loan through Kiva, Okiror has stocked his
store with ample amounts of medicine for the community. In fact, his business
has been so profitable that Okiror has already repaid $50 of his loan. All loans can be monitored on Kiva's site
through a private account that a donor creates, and more than one donor can
contribute to the same recipient. A microhistory of microcredit The concept of microloans, or microcredit, has been around
since the mid-1970s, when ACCION International began issuing small loans to the
indigent entrepreneurs of Recife, Brazil. ACCION was started in 1961 as a student-run
non-profit aimed at relieving poverty in Latin American cities. By 1973,
however, they realized that their efforts did not fully address the roots of
urban poverty. According to former ACCION director Terry Holcombe, "We
began to sense that a school or a water system didn't necessarily have
long-term impact. We were simply reorganizing the resources that a community
already had within it, rather than increasing their resources." Instead, ACCIÓN began funding microentrepreneurs -- mostly
migrant workers who were unable to find work in urban areas and began selling
wares or produce -- who until then had no alternative than to borrow from local
loan sharks. Meanwhile, Muhammad Yunus, an economics professor, ran a
similar experiment in his native Bangladesh by lending money to people too poor
to qualify for standard bank loans. Yunus' initial research project consisted
of loaning $26 from his own pocket to 42 impoverished Bangladeshis (roughly 62
cents per person), which he found to be a highly successful way of fighting
poverty in rural Third World areas. From what would seem like a token sum of
money, these microentrepreneurs were able to launch their small businesses, eke
out a living, and eventually repay their loans. In 1976, Yunus founded Grameen Bank, the first microcredit program based on
the idea of sustainable self-employment for destitute Bangladeshis. Grameen's clientele is broken up into groups of five
borrowers who apply for loans together and serve as co-guarantors of
responsible repayment. Interestingly, over 90 percent of Grameen borrowers are
women. Grameen determined that women are lower credit risks than men; they are
more likely to repay their loans in a timely fashion and spend their earnings
on their families. Furthermore, microcredit allows these women to own assets
and play decision-making roles in their communities. Year of the micros Microfinance has been so successful in recent years that the
UN declared 2005 as the International Year of Microcredit. Why then, did Matthew Flannery feel the
need to launch Kiva? "Microfinance
is expensive," Flannery said. "There's also a huge desire for it to
be profitable. In almost no part of Africa has microfinance been profitable so
far, and where we're working, there are no other microfinance
institutions." The Consultative Group to Assist the Poor recently estimated that there are
approximately 750 million small-size savings and loan accounts with MFIs. Yet,
while the potential market for microfinance could be up to 3 billion
working-age adults, two-thirds of needy microentrepreneurs are not currently
being reached. Bruce MacDonald of ACCION explained the absence of MFIs in
Africa. "The areas where microfinance institutions are profiting," he
said, "tend to be in Latin America and Central America, where we've been
operating for years." The reason so few MFIs are currently functioning in Africa
is because it is difficult and costly to develop new markets. Before an MFI can
establish a lending program in a new geographical region, which includes
providing borrowers with seed money and basic business skills, the MFI must
first acquire charitable donations and investors. "If you're going to get socially responsible investors
to invest in a microfinance institution," MacDonald said, "you have
to get them a return on their money." MacDonald feels that profitability
is a legitimate concern because it enables an MFI to reach more people and
extend its range of financial services. Currently, ACCION is in the process of
expanding to Africa. People over profits By creating a p2p website for microlending, the Flannerys
bypassed the painstaking process of creating a standard microfinance program.
Since Kiva is privately funded by what Matthew Flannery calls "the rich
guy network" in the San Francisco Bay Area and Silicon Valley, Kiva is not
concerned with making profits. Instead, Kiva works within VEF's infrastructure
in East Africa, relying upon Zadock Moses Onyango, a VEF volunteer field coordinator, to
administer the loans and work with loan recipients. Kiva has already made a huge splash in the blogosphere.
After garnering attention from Daily Kos, WorldChanging and BoingBoing in recent weeks, Kiva was overwhelmed by
potential donors. Last Friday, Kiva expanded to other African nations,
including Kenya
and Tanzania. As Kiva's site has recently expanded, so too have the
stories about their featured microentrepreneurs. On Kiva's weblog, Onyango and other VEF staff members chronicle
the stories of individual borrowers. With a few clicks, you can find someone like Agatha Kubena,
a tailor from Dodoma, Tanzania, who received business training from VEF. Kubena
is disabled, and wants to buy a sewing machine and the fabric necessary to make
traditional African garments so that people in her community won't have to
purchase foreign clothes. Like many of the personal accounts on Kiva, Kubena's
experience will resonate with people everywhere who are struggling just to get
by. As Flannery said, "I find the loan is often just a means of connecting
to another person." Zack Pelta-Heller is a graduate student at
The New School and a regular contributor to AlterNet. http://www.alternet.org/story/29345/ |
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