At Kiva, we are committed to transparency
as our highest value. We constantly strive to gather and share a huge amount of data about Kiva and how it works online, so
that we can get regular feedback from our community and others about ways that we can grow and improve.
the data we release can be misunderstood or misinterpreted. This happened several times in a recent article on NextBillion by Hugh Sinclair. We appreciate the opportunity to set the record straight below, as we respond to some
of the inaccurate statements.
Sinclair: "[A]ccording to the 2012 financial statements $82
million is sitting in a U.S. bank account, and guess who earns the interest on this tidy ‘buffer?’"
This is simply untrue, and is based on a misreading of our financial statements.
We release our financial data annually,
and at first we couldn't figure out how Sinclair reached the $82 million figure. Then we realized that if you add up four
of the 2012 balances in the “Kiva User Fund” accounts you end up with $82 million.
Here is the breakdown
of that $82 million:
- At the end of 2012, Kiva had $35.3 million in loans outstanding
(loans that were already in the field, not in any of our bank accounts).
- In addition, there was $11.5
million in cash from Kiva lenders scheduled to be sent to the field within the month (for efficiency and cost savings, Kiva
transmits funds once a month to the field).
- There was also $3.9 million in cash held as Kiva Card values
not yet redeemed by recipients. (Kiva Cards are usually purchased as a gift for the holidays, so they're likely to not yet
be redeemed at the end of the year.)
- There was also $31.3 million in cash for Kiva Credit value, which
is the total of user cash balances.
It looks like Sinclair added those numbers up and implied that we are holding
onto the funds for our own benefit. The amount is wrong; the innuendo is wrong.
Some of this cash is out in the field,
some is locked up in Kiva Cards, some is Kiva user balances yet to be directed, and some is scheduled for release to the field.
If you are a Kiva user, you know that we are constantly reminding you to lend your balance so that the funds are not idle
and can be used in the field.
Note the “Kiva User Funds” is an escrow-like account. It is a FDIC insured,
low-yielding “For Benefit of Others (FBO)” account that we administer. We set up this FBO account so that Kiva
users’ funds (meant for lending) are fully separate from Kiva’s operational funds as a nonprofit (Kiva Microfunds)
Sinclair: "[G]uess who earns the interest on this tidy ‘buffer?’"
Actually, Kiva only earns nominal interest (less that 0.5 percent) on the balances in lenders' accounts. That's because,
to protect lenders, we operate our users’ funds like an escrow account and do not invest it to earn interest. The cash
sits fully liquid in a Wells Fargo demand deposit account.
In 2012, Kiva received about $50,000 in interest on this
FBO account. That interest helped to pay for things like transaction fees to transfer those funds to the field (and in 2012,
the transaction fees on these funds were about $30,000).
So in total, Kiva earned roughly $20,000 from the bank, net
of transaction fees. This reflects our philosophy that we shouldn't put our lenders’ capital at risk, and instead
should be as conservative as possible in safeguarding those funds.
Sinclair: “Despite most
staff being volunteers, Kiva managed to spend $0.13 for every $1 loaned. Typical specialized microfinance funds will make
a modest return with a 2 percent annual management fee from which to cover all costs – making them 6 or 7 times more
efficient than Kiva in getting money from investor to poor person.”
Sinclair compares Kiva to a typical
investment fund when he discusses our financial efficiency. In doing so, he misses our larger social aims. Unlike a typical
investment fund, we aim to engage and educate individuals, creating a simple way to connect with someone across the planet
and advance a market-based approach to poverty alleviation. Through this experience, our lenders supply loan capital with
altruistic motivation. This 0 percent interest “patient capital” can uniquely fill a critical gap between limited pools of donor capital and abundant pools of risk-averse commercial capital.
Like any mission-driven
organization, we are aspirational. We set lofty goals, and are relentless about improvement. Some elaborations:
- Unlike an investment fund, Kiva operates a number of programs based on community outreach and education. For
instance, we operate Kiva U, where K-12 teachers can download poverty-focused curriculum to help their students think critically about global issues.
One month after Kiva U’s launch, +1,000 curriculum were downloaded. And over 3,000 schools and universities have set
up Kiva lending teams with countless student leaders engaging in global issues for the first time. Engaging young people is
not the most efficient way to raise capital, but we believe it’s an important lever point in long-term social justice.
- Unlike an investment fund, Kiva seeks to place capital where commercial investment
funds won’t go due to perceived risk or cost. For example, commercial investors fear post-conflict / fragile states
like Iraq because of country risk and information asymmetry. Kiva has three active partners in Iraq and several other conflict
regions. It costs more, but Kiva actively seeks out, diligences and trains Field Partners in these difficult environments
because our lenders are impact first and this is where we can be most catalytic. To the best of our knowledge, Kiva invests
in more post-conflict African MFIs than any other international investor. Our hope is that over time, such early investments
at the “risk and cost frontier” de-risk the investment profile for more conservative investment funds, paving
the road for impact at scale. We are proud to be part of that effort and check out Kiva Labs for more on this.
- Our expenses in 2012 were around $14.2 million. Our costs were covered through
donations – not through charging fees or interest. And during 2012 our lenders made about $111 million in loans. This
means about $7.8 was sent to the field for every $1 we spent on expenses that year. In 2013, the ratio was above 8:1, and
in 2014, we’re targeting 9:1. That’s good, but we know we can do better. By 2015, we want to get this ratio to
10:1 and continuously improve operating leverage.
- Kiva does not make money from the loans we facilitate.
Instead, we depend upon donations. The majority of Kiva donations are provided by our lenders, who “tip” us on
top of the loans they make to borrowers. They do this because they believe in Kiva and what we’re doing, and recognize
it takes infrastructure to make this work in 70-plus countries. A large majority of the rest of our donation income is provided
by foundations, who encourage us to create innovative programs to serve the poor more effectively (e.g. Google.org funding
of Kiva Labs).
Kiva works to maintain its overall efficiency and effectiveness. Many have validated this, including Charity Navigator, which gives Kiva its highest rating.
Sinclair: “[M]any [field partners] are now deserting Kiva (as shown by their high number
of inactive partners).”
Sinclair makes it sound as if there is a mass Field Partner exodus at Kiva due
to high operational cost. Again, simply untrue. Each year, we retain the significant majority of Field Partners and
add several new ones. And when Kiva no longer works with a Field Partner, it’s typically for reasons other than operating
For example, as issues of mixed impact and over-indebtedness in the microfinance industry emerged, Kiva developed
an intentional strategy to ask mature MFIs to either exit Kiva or reorient how they use Kiva. Our goal in reorienting mature
MFI’s was to focus the internet community’s low-cost patient capital at expanding microfinance’s risk and
cost frontier – rather than subsidizing an over-crowded market.
Since then, Kiva’s mature MFI partners
have responded by creating over 60 new loan products representing nearly a third of Kiva’s outstanding loan portfolio. The internet community’s patient capital
now provides more room to test student loans with longer tenures or agricultural loans with delayed repayment schedules. If
the repayment rates are high, these new loan products will be mainstreamed and more will be better served. As Bill Gates recently stated, philanthropy is most catalytic when it can crowd in the private sector.
Sometimes we exit partnerships because we’ve
identified and verified fraud or misreporting of data. We communicate these findings on our website. You can see a list of
all partners – past and present – here http://www.kiva.org/partners; you can click on any partner link to see its current status and any recent updates.
“Institutions such as Zidisha may be a step in the right direction, actually doing what Kiva claims to do.”
We agree that direct loans to borrowers may be a step in the right direction.
Two years ago, Kiva launched an experiment
in Kenya and the U.S. called Kiva Zip (KivaZip.org), to directly lend to borrowers at 0 percent interest over the internet (e.g. PayPal) and via mobile phones (e.g. M-PESA).
We transfer the funds raised directly to the borrowers.
The key innovation we’re developing is “social
underwriting” where people and organizations can vouch for a borrower’s character online. “Social underwriting”
qualifies borrowers without a formal credit history for a lower interest rate loan versus their market alternatives.
best thing about this model is that cost savings from leveraging existing social capital and new technologies can
be passed on to the borrowers, which helps enable our 0 percent interest loans. The downside is that the borrowers receive
less hands-on support.
In Kenya we’re nearing 2,000 borrowers served with strong demand, and a repayment rate of 92 percent. In the U.S., lenders have supported
about 500 people with an 87 percent repayment rate. We’re still very much at the beginning stages of this experiment
but are learning a ton.
We’re directly measuring impact through survey data over SMS, which is very promising
so far. And later this month, researchers at Innovations for Poverty Action in Kenya will start preliminary research towards a full Randomized Control Trial. Inspired by GiveDirectly, we wonder if there’s a way to reach the same population with extremely low-cost, flexible repayment loans that would
create similar social impact on a more sustainable basis. Time – and a lot of work – will tell.
“Kiva has started lending in the U.S, charging Americans perhaps 10 percent interest.”
Kiva does not charge interest to borrowers outside of the U.S., Kiva does not charge any interest at all to American borrowers.
- As mentioned above, Kiva is piloting a new program called Kiva Zip to explore new avenues
to bring down the costs of borrowing. Kiva Zip borrowers receive 0 percent interest, no fee loans. This pilot is happening
in the U.S. and Kenya.
- Kiva also has field partners in the U.S. and those partners are permitted to charge
fees/interest to borrowers. Just like with our non-U.S. partners, Kiva itself receives 0 percent interest from these
In the eight years since we started, we’ve worked to raise awareness, connect people and
spread access to capital and opportunity. Our community has made solid progress, but this project is far from complete.
We know that poverty is multidimensional, that microcredit is just one tool, and that it is far from being perfected. Along
those lines, we’re working to make microcredit more impactful by reducing borrowing costs, increasing repayment flexibility, pairing it with high impact interventions in agriculture, water and sanitation, health, education, clean energyand more.
We appreciate the opportunity to set the record straight on Kiva and respond to some of the factual inaccuracies
in the original article.
Thanks for reading.
Matt Flannery is the co-founder and CEO, and Premal Shah is the president of Kiva.