Friday, January 29, 2010

Welcome BRAC Sri Lanka and Kiva's First Sri Lankan Borrowers!

Kiva Lenders,

Today we are excited to announce the beginning of our partnership with BRAC Sri Lanka and the first loans to Sri Lankan entrepreneurs on Kiva! This is a partnership that will work a little differently than the rest of Kiva’s partnerships, due to the nature of banking regulations in Sri Lanka.

BRAC Sri Lanka launched operations in early 2005 following the tsunami that devastated coastlines across South and Southeast Asia. Initial activities focused on the provision of emergency relief for communities affected by the tsunami, including medical assistance for the injured, cleaning and disinfection of water wells, installation of latrines, and distribution of stipends and school materials for children. In May 2005, the institution launched its sustainable livelihood development program providing grants and loans for the re-establishment of sources of income that had been lost or severely damaged.

From its humble beginnings, BRAC Sri Lanka has grown to become the second largest NGO-microfinance institution in Sri Lanka serving 50,000 borrowers through a network of 55 branches spread across four districts. Over the next three years, the institution plans to expand its area of operation and expand its network to 100 branches and 150,000 borrowers.

In order to accept funds from Kiva lenders, BRAC Sri Lanka had to receive approval from the Central Bank of Sri Lanka. As part of their approval, the Central Bank of Sri Lanka set special conditions on funds from Kiva lenders:
- Kiva funding can only be used for borrowers below the Sri Lankan poverty line
- BRAC Sri Lanka should provide significantly reduced interest rates to borrowers receiving Kiva loans
- The Central Bank of Sri Lanka also required that Kiva funds must remain in Sri Lanka for no less than 12 months.

Even though the Central Bank of Sri Lanka requires that funds from Kiva lenders must stay in Sri Lanka for at least 12 months, we believe that we can accommodate timely repayments to Kiva lenders.

In order to minimize the number and expense of wire transfers across national borders, Kiva uses a billing system called “net billing.” This means that, for any given month, we subtract the amount of repayments that a Field Partner owes to Kiva lenders from the amount that a Field Partner fundraises for entrepreneurs on Kiva.

If the balance is positive, that means that the Field Partner has raised more money on Kiva than they need to repay, and we use those raised funds to credit your lender account with the repayments due to you.

With this system, Kiva can work with partners like BRAC Sri Lanka that disburse loans repaying monthly but where Kiva lender funds can’t flow back out of the country for a year. This is, of course, only possible when all goes right. There is the possibility that BRAC Sri Lanka has fewer than expected Kiva borrowers in one month and owes us funds. In a worst case scenario, it may take up to 12 months to get Kiva lender funds out of Sri Lanka.

We are piloting this new arrangement with BRAC Sri Lanka based on the organization’s strength and strong social mission, positive experience with other BRAC partners in Africa, and the unique opportunity to work in Sri Lanka (outside of this, we wouldn’t otherwise be able to work in Sri Lanka). We look forward to hearing from the lending community on this and hope you join us in welcoming BRAC Sri Lanka and its clients to Kiva!

Ben Elberger, Regional Director for Anglophone Africa and South Asia
Stephanie Koczela, Field Support Specialist for Anglophone Africa and South Asia