FinTech

Kiva Adjusts Lending Model in the U.S.

Peer to peer microlender Kiva is changing the way people crowdfund on their site specifically for the U.S. market. The non-profit is best known as a platform where those in less fortunate countries can solicit loans in order to start a business or finance other expenses but expanded to include entrepreneurs domestically starting in 2009. However to date the company has only facilitated 3,700 loans to those in the U.S. — a small piece of the $800 million in loans the company has overseen worldwide since 2005.

According to The Wall Street Journal, Kiva is now attempting to expand here at home by changing to a model they call “social underwriting.” In order to qualify for a loan entrepreneurs must now have a minimum of 10 of their friends or family members kick in at least $25. The company says that they have found that this model has led to higher repayment rates during their four years of testing.

The new program rolling out nationwide is known as Kiva Zip. Entrepreneurs can crowdfund up to $10,000 in funds using Zip after the aforementioned friends and family round. As Kiva’s site states, “When Kiva Zip lenders see that a borrower has some skin in the game, because they have invited their own friends and family to lend to them, they are more likely to make contributions of their own.” What makes the Zip loans truly special is that they carry a zero percent interest rate, no fees, and terms ranging from six to 36 months.

During testing of Zip, Kiva saw its repayment rate in the United States rise from 86.9% to 92.1%. For comparison a study cited by WSJ found that 9% of crowdfunders on the popular site Kickstarter failed to complete their projects or give promised rewards to backers. Another interesting note is that 30% of those applying for the Zip program so far don’t make it past the friends and family round. On the other hand those who do get fully-funded 92% of the time.

As Kiva president Premal Shah told WSJ, “We think we have really cracked a new model of underwriting. He added that the new Zip program, “sends a strong signal that your friends believe in your character and the quality of your idea.” The company is hoping that this new approach to crowdfunding will allow them to grow in the States and help more worthy entrepreneurs. Additionally Kiva has said that is the model proves successful here it could expand worldwide.

Kiva has long demonstrated the power of FinTech and how it can be a force for good. The company’s slogan “loans that change lives” has rung true for many lenders including former president Bill Clinton who has been a big supporter of the non-profit. Luckily Kiva continues to innovate and this latest program promises to be beneficial to all involved.

Other Articles by Jonathan Dyer