Making Microfinance Easier

Thursday, August 17, 2006

Entrepreneurs in the developing world are starting or expanding businesses using small loans from individuals they’re paired with online.

Excerpt: For 15 years, Angel Asenov Isaev, a 29-year-old Gypsy living in Sliven, Bulgaria, worked in a bike repair shop in the center of town, struggling to save enough capital to start his own shop. About five months ago, Isaev applied for a $250 loan from a local microfinance institution (MFI) called REDC Bulgaria.

He got the loan, opened the business, and is now working seven days a week to keep up with demand. But the money didn’t come from Bulgaria: It came from America. That’s because REDC had partnered with a U.S.-based Web site,, which pairs individuals with a few dollars to spare with entrepreneurs in the developing world (see, 7/31/06, “A Little Money Goes a Long Way”).

Here’s how it works: Kiva uses social networking tools to allow partner MFIs like REDC to upload profiles and photos of people who need capital to start or expand their businesses. Then, individual users, mostly from the U.S. so far, can choose a partner and grant a loan to that person. The borrower pays back the loan in increments, and often keeps a journal on their progress, which is updated on the site every few weeks.

Through its partnership with PayPal, grants loans with very low or no interest, since there’s no processing fee for each payment. In the five months since its launch, its borrowers have kept their part of the agreement, with no defaults reported so far. has processed $200,000 in loans, disbursed among 450 entrepreneurs, from the Gaza Strip to Samoa.

Source: Business Week (link opens in a new window)