Friday, June 19, 2009

A Letter from Kiva About Pilot Partnerships in the U.S.

Dear Kiva Lenders:

Last week Kiva launched two pilot partnerships with microfinance institutions in the United States: ACCION USA and Opportunity Fund. These two partnerships represent the 115th and 116th organizations Kiva has partnered with. The United States is Kiva’s 45th country. It represents our first foray into the developed world.

Our decision to work in the U.S. is controversial. Over the past few years, one of the top questions asked by our users has been "Why aren't you working in the U.S.?" We've been criticized for helping out entrepreneurs abroad while "ignoring" those in our own backyard (Kiva is based in San Francisco). Thus, long ago, we made a promise to research the idea. It took us nearly four years to get here, but we finally made the move on June 10th.

Since the launch of the U.S. pilot, we've received a new criticism from a different set of users. They asked us "Why are you working in the U.S.?". They point out that entrepreneurs in the U.S. aren't as poor as those in developing countries. Others argue that we are favoring the U.S. because we are an American nonprofit. Some of them have even been particularly vocal!

Both points of view have a lot of merit and we are joining the conversation. It is inspiring to see the passion of the Kiva community as they stand up for what they believe. We thank you for making your voice heard and promise to take into consideration your feedback as we evaluate U.S. pilot. In this short letter, we wanted to explain our thinking up to this point and our action plan moving forward. Lastly, we want to invite you to be a part of the decision making process.

How we decided to partner with microfinance institutions in the United States

Kiva was founded with only Ugandan borrowers in 2005. Shortly after launch, we began to get feedback from all over the world that the concept could be applied elsewhere to great benefit. Soon, we began to see loans sent around the world in all directions, from the United States to Tanzania, from Australia to Mexico, from Mexico to Peru, from Kenya to Indonesia. As we grew, we incorporated feedback we received from the internet community and MFIs around the world. When Kiva Lenders asked us for a partnership in Iraq, we worked really hard to make that a reality, when Kiva Lenders asked for connections to Afghanistan, we listened. We continue to do so.

Kiva strives to give lenders the power of choice. It has always been important to us that lenders can choose the individual they make a loan to, the Field Partner facilitating the loan and the country in which the entrepreneur resides. We believe these choices are a part of what makes lending through Kiva fun and satisfying. Each new country that Kiva expands to offers additional choice to Kiva Lenders, and this is true also of our partnerships in the United States.

Ultimately, however, the choice is yours.

How this fits within Kiva’s social mission

Kiva’s mission is to “connect people, through lending, for the sake of alleviating poverty.” We of course recognize that poverty is relative, and the poverty experienced by some of the entrepreneurs in Uganda or El Salvador is not at all shared by some entrepreneurs in the United States. It is usually the case, however, that they lack access to financial services from the formal financial sector in their country. Whether, due to lack of collateral, illiteracy, ethnic or gender discrimination, or due to lack of credit history, or an economic downturn, our Field Partners target entrepreneurs that are denied access to credit elsewhere.

The Field Partners we are working with in the U.S. target low-income entrepreneurs who are often marginalized from the formal credit markets in the U.S. That said, the U.S. entrepreneurs posted to the site represent a spectrum in terms of income level and degree of marginalization. We realize that while some may appear to need the loan, others may not appear to need the loan as much. From the Internet, it is impossible to make perfect judgments. This introduces a degree of controversy as our users debate on the site who really needs the loan and who doesn't. These are debates we are following closely.

How we plan to move forward

Kiva continues to build a portfolio of Field Partners across the globe, balancing our reach in each country to ensure we are widely diversified. At this time, Kiva’s U.S. Field Partners are 2% of the number of the total number of active Field Partners. If we continue with only these Field Partners, they will account for no more than 5% of Kiva’s total portfolio outstanding. However, if we decided to enroll additional U.S. Field Partners, the US could represent a larger percentage of the portfolio. The Kiva staff and community have the chance to make a thoughtful decision together before we jump into anything.

Thus, we are currently in "wait and see" mode with regard to this possible expansion into the U.S. and other developed countries. For the next few months, there are several things we will be monitoring. For instance, does the U.S. offer increase our lender base so that everyone benefits? Conversely, do the U.S. loans detract from the loans in developing countries? Are we lending to borrowers who can truly benefit from our help in the U.S.? Can we have a demonstrable positive impact for our Field Partners here?

As the summer progresses, we will be looking for answers to these questions and more in order to determine our strategy. We invite your feedback along the way. The best ways to contribute are:

1) Vote with your wallet - we will be tracking the rate of funding for U.S. businesses vs. other businesses
2) Post your opinion to this thread on Kiva Lending in the U.S
3) Vote in this online poll.

4) Join our next Community Conference Call, scheduled for July 15th. Dial-in details will be posted here, on the Kiva Blog.

Thank you for caring and for helping to shape the future of Kiva. We look forward to continuing the conversation.


Matt Flannery, CEO and Co-Founder
Premal Shah, President