James Militzer

(UPDATED) Weekly Roundup 10-2-15: Kiva Zip folds in Kenya – what happened? Updated with a Kiva Zip response

Editor's note: This post has been updated to include responses from Jonny Price, Kiva Zip's senior director. 

Kiva Zip was launched in 2011, and quickly acquired considerable acclaim – as Bill Clinton said when announcing Zip’s arrival in his hometown of Little Rock, Ark., “This is a very big deal.”

Zip owes its appeal to the interesting twist it applies to the familiar Kiva model: Rather than allowing individuals to fund portions of loans already issued by Kiva’s partnering microfinance institutions, it lets lenders finance – and even interact with – entrepreneurs directly as these borrowers request, utilize and repay interest-free microloans through the platform. This not only enhances the “feel good” element of the experience for lenders – an important part of Kiva’s appeal – it also reduces the burden of these loans for borrowers. Since formal MFIs are removed from the equation, loan recipients avoid the risks of potentially high interest rates – and Kiva avoids the uncomfortable conversations these rates can provoke.

So the service seemed like a win-win-win, and to an outside observer, its dual operations in the United States and Kenya appeared to be progressing smoothly. Kiva Zip’s senior director, Jonny Price, sounded upbeat when he wrote on NextBillion in April, “We’re excited by (Zip’s) potential to revolutionize the way that small business owners in America, and the wider world, are able to access microcredit.” Meanwhile, over the past four years, the platform enabled more than 8,000 lenders to make almost 10,000 microloans totalling a reported $1.8 million to more than 6,500 borrowers in Kenya alone.

But this week, Kiva Zip announced that it is winding down its Kenyan operations. What happened, and what does it mean for the future of the direct person-to-person lending approach in microfinance?

In a sense, Kiva Zip’s Kenyan pilot was brought down by the fact that its underlying innovation wasn’t quite innovative enough. At the core of the program is the use of “Trustees” – organizations or trusted individuals in a borrower’s community who have no money at stake in the event of default, but who vouch for the borrower’s trustworthiness. The approach was designed to open the door to financing for entrepreneurs who lack high credit scores or collateral, but who have enough social capital to demonstrate their creditworthiness to lenders. It allows Zip to enable direct lending without Kiva’s traditional MFI partners – and the interest rates they charge for their services.

But in Kenya, according to Price, digital exclusion among borrowers required these Trustees to take a much more active role than their U.S. counterparts, facilitating many aspects of the application and repayment process. And that’s what ultimately made the model unsustainable. Depending on volunteer Trustees to do much of the work led to delays in loan disbursal and repayment processing, keeping both borrowers and lenders waiting. What’s more, many Trustees were discouraged by logistical challenges – and by the fact that they weren’t receiving any compensation for their efforts. At the end of the day, the Kenya program’s reliance on Trustees to underwrite loans had made it very similar to Kiva’s traditional, partner-intermediated approach in practice – but nobody was getting paid.

So what’s next for Zip? As Price described it in a recent blog post and subsequent email conversation, the “social underwriting” approach is working well in the U.S., and will continue. And at some point, Price says they hope to take the more direct U.S. model to other countries – presumably once digital inclusion has expanded further. In the shorter term, Zip will refocus its efforts in Kenya on transitioning some Trustees to traditional Kiva “Field Partners” – and connecting Zip borrowers to these partners as well. So in effect, Kiva Zip Kenya will be reabsorbed into Kiva’s classic model.

But it’s unclear if digital exclusion was really the main culprit here. Kenya would seem to be one country where this problem would be manageable, and competitors like Zidisha are operating there without the extensive use of on-the-ground volunteers. Might Kiva emulate their approach? We’ve asked Price, and will update this post if he responds. (Editor's Note: See Price's responses below.)

Meanwhile, Kiva’s lending community doesn’t seem thrilled with its Kenyan decision. As one typical comment on the blog post announcing the suspension put it, “It's disappointing that Kiva are going to retreat to what's easy (servicing digitally-included borrowers in a rich part of the world) rather than taking on the challenge of finding answers in Kenya.” Will the organization crack the code of direct P2P lending in low-income environments, without interest payments or paid intermediaries? Can it do so while making the platform attractive to both borrowers and lenders – who presumably prefer to be repaid? Its experience so far suggests just how heavy a lift that proposition could be.

– James Militzer


UPDATED Oct. 22, 2015

After this post was published, Kiva Zip's senior director, Jonny Price, responded to some of our questions via email. These questions, and his responses, are included below:


James Militzer: When you wrote in the blog post announcing the end of the Kenya program that you're "working to transition some Zip Kenya Trustees to Field Partners" – does this mean you'd be helping some of the individuals/organizations that have helped administer these loans into formal MFIs, which would then work to disburse loans given through traditional Kiva?

Jonny Price: We are working with trustees to explore which would be good fits to administer loans as Field Partners in the partner-based Kiva.org model. These trustees will probably not become MFIs, but over the last few years, Kiva has been increasingly looking to work with non-MFI Field Partners like Sanergy or Komaza. To learn more about some of Kiva's partnerships with organizations offering highly innovative, flexible loan products, please see our Kiva Labs page here: http://www.kiva.org/labs.


JM: You wrote that "While we still believe direct lending holds great promise for Kiva, it’s become clear that in order for the Kiva direct model to be sustainable, borrowers themselves must be digitally included at a level that is currently not common for low-income borrowers in developing countries." Assuming that that situation is changing fast – especially in a place like Kenya – do you intend to refine and relaunch a modified Zip model there, or in other developing countries, when digital inclusion has expanded sufficiently?

JP: Yes, our long-term plan is to expand the direct lending model to other developing countries. But that probably won't be for a few years — unless we get a really generous grant to make it happen. 🙂


JM: Could you see Kiva Zip adopting a model like Zidisha's, which seems to be getting by in developing countries without a network of volunteer intermediaries? Or do you feel that their model, which targets mostly young people in urban areas who are comfortable online, isn't reaching those who need funds the most? (Or are there other reasons it wouldn't be workable?)

JP: We see a range of digital models out there — Kickstarter, Indiegogo, LendingClub, Lenddo, Vouch, Branch, Zidisha, M-Shwari, etc. Down the line, when we have the resources and bandwidth to relaunch direct lending in the developing world, I am sure we will draw inspiration from all of those models!