The Only Nonprofit That Matters

Thursday, March 6, 2008

(Fortune Magazine) — Peter Mukasa needs $250 to buy some hooch. Care to help a guy who’s down on his luck if he promises to pay it back? Oops, too late. Mukasa, the owner of a closet-sized liquor store in the Ugandan village of Makindye, posted his funding request on one afternoon in mid-November. Within hours, ten lenders ponied up $25 each to help the man stock his shelves. Case open, case closed.

That’s how quickly things happen at the hottest nonprofit on the planet. The toast of Oprah, the Today show, and Bill Clinton’s latest tome, Giving, Kiva is a way for First World lenders to link with developing-world entrepreneurs, be they Peruvian farmers, Afghan basket weavers, or even Ugandan liquor store owners. And if someone like Mukasa seems unlike the typical charity case, well, this is not the typical charity.

Kiva is a nonprofit, but it has the heart of a Silicon Valley startup. Executives call it a “company.” Rather than tax-deductible donations, users pledge interest-free loans. Standard-issue charities take as much as 40 cents on the dollar for administrative costs, but Kiva directs 100% to borrowers, thanks in part to free payment processing from PayPal. (Kiva keeps the servers running and the 16 employees paid by tacking on an optional donation of 10% of every loan.)

And whereas charitable giving often resembles investing in a mutual fund i.e., write a check and let the experts do the work Kiva treats lenders the way a full-service broker services a big-money client, providing risk assessment upfront and a steady stream of post-investment information. Every borrower has an associated risk rating. The number of defaults sits out in the open (currently 0.14% of all loans), a few clicks from photos of deadbeat borrowers. The organization discloses scams immediately, not to mention good news from the entrepreneurs themselves. “We think the users want information more than they want their money back,” says Matt Flannery, the 30-year-old CEO who founded the site with his wife, Jessica, in the fall of 2005. Jessica (Kiva’s chief marketing officer, also 30) saw Nobel Prize winner Muhammad Yunus speak at Stanford about eradicating poverty through micro-finance, which inspired her to take a three-month trip to East Africa. Matt joined Jessica, and when they came back they spent a year exploring the idea behind Kiva. Once the site went live in the fall of 2005, Matt quit his engineering job at TiVo to devote himself full-time.

Continue reading

Source: Fortune Magazine (link opens in a new window)