Kiva’s Secret Weapon: Lower Cost of Capital
The second?part of NextBillion’s interview with Kiva focuses two issues that drive the organization’s success: Kiva’s value proposition within the greater microfinance community and strong partnerships that connect Kiva to its entrepreneurs. As many of you have read, microfinance has a fair number of critics, like NextBillion’s Rob Katz who recently wrote, ?Realists know the truth–it (microfinance) suffers from high interest, misrepresentation of repayment rates, poor risk management, and insufficient scale.? Yet, one can not ignore the potentially transformative role small business can play in developing countries. The beauty of Kiva is its ability to address some of the most damaging charges leveled against microfinance by allowing MFI’s to lower interest rates and offer additional services to its entrepreneurs, all while remaining self sustainable. How? The key is excellent partners and the lower cost of capital Kiva provides them (2% vs. 12% industry average).
Focusing on the latter for a momement one may realize that the lower cost of capital that Kiva provides defines its business case and its transformative potential. Kiva provides some initial data that supports the organization’s business case, as well as some a smorgasbord of ideas, potential applications of Kiva’s model, and information about other peer to peer investment groups.? Read the full interview with transcripts and audio clips.