Kiva.org Lends in America: How Do They Do It?

I was heartened to see Kiva.org’s new domestic program. The loans are slightly larger than most of their overseas lending opportunities, but still relatively small for traditional business lending. However, I couldn't help but wonder how they're able to do this when so many other P2P platforms have failed to lend domestically due to heavy SEC regulation.

What I’ve learned is that Kiva loans don’t pay interest to lenders, and aren’t securities, so as such, they don’t fall under the SEC umbrella. Additionally, as a micro lender, Kiva is a 501(c)3 nonprofit organization, the government with oversight authority is the Internal Revenue Service (IRS).

This means that interest-bearing Kiva accounts are still likely to be a long way off (if ever), but that the program should be sticking around for a while for borrowers, which is great news for micro lending enthusiasts.

The initial domestic roll-out happened in early June and included 45 American entrepreneurs seeking loans from $1,025 to $10,000.

Kiva’s field partners are Accion USA and OpportunityFund.org.

According to an online article in OnPhilanthropy.com, Kiva has provided $76 Million in loans to help small businesses worldwide

Jessica Ward is a freelance writer based in the Seattle area. She writes on peer to peer finance, family and more. Her freelance portfolio is available online at www.jessicaward.me.

President Obama Nominates ACCION Executive to U.S. Department of State

President Obama has nominated Maria Otero, the Chief Executive of ACCION International to be the undersecretary of global affairs at the US Department of State. She has announced via ACCION press release that she intends to accept the nomination, provided that her appointment is confirmed by the Senate’s Foreign Relations Committee.

Ms. Otero is a native of La Paz Bolivia and has been part of ACCION since 1986 and CEO since 2000. She was honored in 2005 in Newsweek’s special report “How Women Lead” and was regarded as one of the 20 most influential women in the United States. She received Hispanic Magazine’s “Latina Excellence Award” and has also been featured in the magazine.

Since 1997 Ms. Otero has been an adjunct professor at the Johns Hopkins School for Advanced International Studies (source: Leigh Bureau speakers bureau).

The position of Undersecretary of Global Affairs in the U.S. Department of State is responsible for U.S. foreign relations on a variety of issues including democracy, human rights, environment, health, population, trafficking in persons, influenza and women’s issues among other things.

Catherine Quense, the Chief Deputy at ACCION will assume Ms. Otero’s duties immediately while the board conducts a global search for a successor.

ACCION is an international private non profit organization with the mission of giving the poor the financial tools that they need to work out of poverty. They provide microloans, business training and other financial tools. ACCION has disbursed more than 28.5 million loans in the last ten years, which total $23.5 billion USD (Source, PR Newswire).

Jessica Ward is a freelance writer and blogger who covers frugality and the financial sectors. She is based in Seattle. For more information, visit her Web site at www.jessicaward.me or follow her on Twitter as @jessc098.

Ever wonder how microcredit works under Islamic law?

How does finance work when falling Islamic law (Shariah)?

A longstanding problem in the adoption of microfinance in the Arab world is adapting the programs to work for followers of Islam. Muslim Law (also called Shariah) has several tenets that contradict traditional financial systems including:

• Payment of zakat (charity)
• No riba (interest) paid or earned
• Socially-responsible investing/saving (Gharar)

In order for microloans (or any loan product) to be Shariah-compliant, it is generally structured through a trust-sale known as a murabaha—a negotiation of profit margin, rather than interest—into the final price. It’s sort of like paying your mortgage in all points, without annual interest. This sort of loan is called a Qard al-Hassan, or benevolent loan.

Naturally, this format is difficult to translate into microfinance, but many organizations and banks which cater to Muslim borrowers are springing up. Currently there are 265 banks operating in 40 countries with assets in excess of $262 billion USD. Even commercial giants such as CitiGroup are adapting to reach this growing population.

Similar to debt, interests are also structured to be socially-conscious and non-interest bearing, looking more like leases of capital.

I hope you’ve enjoyed learning this different financial paradigm. It sure has been an education for me.

Jessica Ward is a freelance writer and blogger in Seattle. She also writes at www.pennywisefamily.blogspot.com.

Microfinance: By Children, For Children

My only travels in the developing world thus far are limited to the month I spent in Ethiopia last year. I marveled at the ingenuity of the children—many of whom fended for themselves. When I visited orphanages, I carried with me more than 5,000 “twisting balloons” to make balloon hats and animals for the kids. The rough terrain, rowdy behavior and stray voltage common there was hard on the balloons, and they popped almost instantly.

What surprised me was that the children collected up every last scrap of broken balloon and put them to use. Some made jewelry, some built sling-shots, others took the ends and made hair elastics from them for braids. A balloon micro currency erupted in each building that I visited over the two weeks that my balloon supply held out.

Another thing that I’ve learned from families who have since visited is that the balloon currency still exists in some of the buildings—months later! Children have stashed and preserved balloons (some still intact and un-inflated) for another day.

My mind came back to this scenario when I saw a story today on the Children’s Development Bank (CDB). CDB is a bank run by and for children in India, Afghanistan, Bangladesh and Nepal.

CDB serves the street children of these countries. These kids use their entrepreneurial skills as workers for hire. Because street children are so vulnerable to theft, they rarely amass enough money to make an entrepreneurial move in building their business or education. Instead, they spend what they need to meet their day-to-day needs and spend the rest of their money on small luxuries (Pepsi and chewing gum were the favorites among the street children in Ethiopia).

CDB is solving this problem by providing interest-bearing deposit accounts to children as well as low interest microloans. The novelty of this plan is that the entire business is operated by children. A board of children determine who will receive loans—and they evaluate the credibility and creditworthiness of the child who wants the loan, as well as their intentions. The children on the advisory board also determine membership, eligibility and the size of the loan available as well as interest paid on savings for members of the bank.

Children are encouraged (and do) invest in the bank their daily earnings. They also take loans to improve their education or business services. They can borrow for items such as inventory (many children in Ethiopia had toilet-paper sales businesses) or shoe-shine supplies or any number of other tools to provide their services.

While the process is facilitated by adults with knowledge of finance, recordkeeping and banking, children are the decision-makers.

You can read more about the Children’s Development Bank by visiting their Web site at http://www.childrensdevelopmentbank.org/new.htm.

IMAGE CREDIT: CDB Web Site www.childrensdevelopmentbank.org

Jessica Ward is a freelance writer, blogger and mother of two children. She blogs at www.pennywisefamily.blogspot.com.

Kiva passes $60 million in loans

Kiva just surpassed the $60 million mark in loans through their microcredit platform. Kiva's target for 2009 is to lend another 60 million dollars matching what they did the first three years.

Here is a look at their current stats:

Total value of all loans made through Kiva:	$60,226,510
Number of Kiva Lenders:	446,097
Number of loans that have been funded through Kiva:	85,996
Percentage of Kiva loans which have been made to women entrepreneurs:	77.94%
Number of Kiva Field Partners (microfinance institutions Kiva partners with):	95
Number of countries Kiva Field Partners are located in:	44
Current repayment rate (all partners):	97.74%
Current default rate (all partners):	2.26%
Average loan size (This is the average amount loaned to an individual Kiva Entrepreneur. Some loans - group loans - are divided between a group of borrowers.):	$429.83
Average total amount loaned per Kiva Lender (includes reloaned funds):	$134.90
Average number of loans per Kiva Lender:	3.69

Are you on Kiva? Join our Kiva team.

Last week in review, and what to watch for this week.

1/21/09: Pertuity Direct Launches

1/22/09: Swap-A-Debt Launches
1/23/09: Liberia gets its first microfinance bank

1/23/09: Peer to peer loans make the Wall Street Journal

1/24/09: Some complain about Pertuity Direct using a “hard pull” on a borrower’s credit history.

What to watch for this week:
More information on Swap-a-Debt’s launch.
Exciting news from Microplace!

Where in the world is microfinance?

This is a summary/analysis of where US microfinance reaches. I'm profiling the organizations included below (in no particular order). I hope you find this as enlightening as I did. If you're aware of other organizations, let me know about them and I'll add them in.

• Opportunity.org - Offers microloans and services to 1.1 million working poor in 28 developing nations.
• Unitus.com - Unitus, an international nonprofit organization, works to reduce global poverty by increasing access to life-changing microfinance services.
• Globalpartnerships.org - Global Partnerships currently works with 21 organizations in Latin America.
• Villagebanking.org - FINCA International provides financial services to the world's lowest-income entrepreneurs in 21 countries so they can create jobs, build assets and improve their standard of living.
• Microplace.com - Owned by eBay since 2006, MicroPlace's mission is to help alleviate global poverty by enabling everyday people to make investments in the world's working poor.
• Endpoverty.org - Since 1985, Enterprise has equipped over 200,000 families all over the developing world to support themselves through their own entrepreneurial efforts.
• WholePlanet Foundation – A division of Whole Foods, provides microloans to microenterprises in ten countries. Unlike Kiva and others, it does not appear that lenders are able to choose the program or individual they would like to contribute to. Total authorized grants to partners as of October 2008 are nearly Eight Million Dollars US.
• KIVA.org – Kiva’s slogan is “loans that change lives” and is one of the leaders in the microlending community. The Kiva Web site allows loan funders to choose individual borrowers to fund, and Kiva estimates that by 2010 they will have facilitated $100 Million in microloans.
• WOKAI – Wokai, meaning “I go” in Chinese is an Oakland, CA startup and has provided just 43 loans in china, but is poised for growth—and has obtained substantial media in areas where its chapter membership is growing such as Seattle and San Francisco. Wokai reaches out to the Chinese-American community for help funding loans that recycle three times (to three different entrepreneurs) and is afterwards used for long-term lending by the lending partner in China.
• ACCION – Accion International is a long-term and global player in the microfinance world. They are active in 24 countries and the USA, and according to their Web site they have made $17.4 Billion in microloans. Their historical repayment rate is a stunning 97%.

P2P lending: 2008 in review

The P2P lending marketplace changed significantly in 2008. Of course, we said the same thing in our 2007 P2P lending review. There are also likely to be even more significant changes in 2009.

In 2006 the only real P2P lending story was Prosper. In 2007, Lending Club launched and Zopa expanded to the U.S. In 2008 the story is dominated by regulation - Lending Club obtained a green light by the SEC and most other companies shut their doors as they work towards SEC approval.

Here's a look at each individual company:

Lending Club

• First a quick review of 2007: launched inside of Facebook in May 2007 and loaned $100,000 during their first month, expanded to users outside Facebook and became the first p2p lending platform to loan to borrowers nationwide without state-by-state lending caps, hosted a popular YouTube video contest, and received $10 million in venture capital
• In April 2008 Lending Club halts lending in order to register their secondary market and lending operations with the SEC
• In October Lending Club re-opens for investors and announces a secondary market

Prosper

• First a quick review of 2007: named one of the 50 best websites of 2007 by Time, passed $100 million in loans (now at $108 million), received $20 million in venture capital for a total of $40 million raised
• April - Follows Lending Club's lead and eliminates state rate caps
• October - Immediately after Lending Club reopens, Prosper enters a quiet period and halts operations
• December -Prosper is fined $1 million. They then file a S-1 registration statement with the SEC.
  

Zopa

• First a quick review of 2007: Zopa expanded from the U.K. to the U.S.
• Named 'most threatening non-bank' in April by the 2008 Retail Banker International Forum.
• In October I had a bad experience trying to obtain a loan from Zopa. A couple days later Zopa closes operations in the US

Loanio

• Loanio launches in October with a focus on platinum verification and co-borrowers
• Follows Prosper's lead and halts operations in November in order to register promissory notes with the appropriate securities authorities.
  

Other companies to capture our attention in 2008:

• Swap-A-Debt seeks regulatory approval
• Pertuity Direct announces they will launch 'immediately after the New Year' And they do.
• Fynanz becomes the first P2P student loan marketplace. They halt p2p lending and rebrand themselves (Jan 2009) as a loan platform for credit unions.
• In Canada, IOU Central beats CommunityLend to Canada's market for a couple of weeks in February before they halt operations to 'resolve a regulatory matter'. We are still waiting for the first p2p lending company to open in Canada.
• In January 2008 Globefunder opens their doors to borrowers. Since they are only open to institutional investors we have not discussed them on the blog much since.
• Microfinance grows in the U.S. and around the world. We will cover these companies more in 2009 than we have in the past.
  

We started Prosper Lending Review in 2007. It has been fun and we have learned a lot. Our traffic has grown significantly. According to unique visitors, these are our most popular articles in 2008.

15 Most Popular Articles of 2008

A Prosper scam: The story of Jessica Wolcott - This also happens to be the most read story of 2007 as well.
PayPal competitor Revolution Money Exchange offers $25 sign-up bonus
How does Prosper compare to other investments?
Why does Revolution Money require my social security number?
Borrowing money to lend on Prosper: Wise or Foolish?
P2P lending review: Best of 2007
Prosper: A hands-on education in risk management
Eleven perspectives on P2P lending - this is my favorite article of the year
Fynanz to tackle peer to peer student loan niche
When to bid on Prosper loans
Why would a borrower use Prosper instead of a traditional bank?
P2P Lending Carnival #4
What effect would a recession have on the Prosper marketplace?
Revolution Money Exchange improves referral program
Peer to peer lending in Canada - CommunityLend

We look forward to 2009 and the many positive changes it will bring to the p2p lending marketplace. Happy New Year!

Grameen America sees excellent return on investment and paves the way for immigrant family businesses

Americans are defaulting on their loans in record numbers. Credit cards, student loans and even mortgages. As a result, those with low credit scores or self-employment are finding it difficult, even impossible to get the credit needed to maintain their businesses. Enter Grameen America, a branch of Bangladesh-based Grameen Bank, which shared the 2006 Nobel Peace Prize with the father of microcredit, Professor Muhammad Yunus.

Grameen America is directed by CEO Steve Vogel and is serving loans in one of the poorest parts of New York City—Queens. Since opening a year ago Grameen America has lent $1.1 Million to 440 women in the borough of Queens. All are self employed and have little or nothing in terms of assets. All are also-self employed and many are immigrants. Remarkably, despite mainstream-America’s credit woes, Grameen is reporting a 99.5% loan repayment rate. These loans, averaging about $2,000 each have been issued with receipts and ledgers and without the benefit of credit checks have performed better than heavily documented mortgages and credit cards.

Grameen America holds all of its own loans, and requires weekly meetings with its borrowers. By contrast, according to an MSNBC article, in more than half of all US mortgage foreclosures, the lender and borrower had no communication in the prior twelve months.

There is a core trust between borrowers and lenders (and peer to peer between the borrowers) that the loans will be repaid. In fact, no loans can be issued until all borrowers in a group are current on their payments—which keeps the borrowers aware of each others’ payment status as well.

Grameen America plans to expand to other low-income communities in the United States. Its published goal is to build a culture of individual responsibility, savings and prudent use of credit for income-generating activities throughout the United States. Once a substantial base of about 10,000 borrowers and savers has been established, Grameen America plans to add loans for other purposes.

______

Jessica Ward authored this post. She is a freelance writer, microcredit enthusiast and frequent contributor to this blog.

FRA announces microfinance conference

Here on Prosper Lending Review we generally focus on peer to peer lending. Another closely related topic is microfinance, or microcredit. Microfinance is a term for the practice of providing financial services to poor people. By helping them to accumulate usably large sums of money, this expands their choices and reduces the risks they face. Most transactions involve small amounts of money, frequently less than $100. Microfinance plays a major role in the development of many African, Asian, and Latin American nations.

Financial Research Associates recently announced it will host the first conference of its kind focusing on investment opportunities in the microfinance world. Microfinance for the Institutional Investor is scheduled for January 14-15, 2008 at the Affinia Manhattan Hotel in New York City. This event is designed to help institutional investors learn about the potential of these funds to generate low-risk market-rate returns while alleviating poverty.

Here is a list of the speakers:

Vikram Akula, SKS MICROFINANCE
Scott J. Budde, TIAA-CREF
Robert Annibale, CITIGROUP
Ian Callaghan, MORGAN STANLEY
Bhakti Mirchandani, LEHMAN BROTHERS
Shari Berenbach, THE CALVERT FOUNDATION
William Mills, GOOD STEWARD FUND
Mark Regier, MMA PRAXIS MUTUAL FUNDS
Leonard English, THE GENERAL BOARD OF PENSION & HEALTH BENEFITS OF THE UNITED METHODIST CHURCH
Greg Gentile, LEHMAN BROTHERS
Michael Rauenhorst, THE RAUENHORST FAMILY FOUNDATION
Gil Crawford, MICROVEST CAPITAL MANAGEMENT
Roger Frank, DEVELOPING WORLD MARKETSBrad Swanson, DEVELOPING WORLD MARKETS
Samuel Fox, FITCH RATINGS
Nicolas Krauss, THE BOSTON CONSULTING GROUP
Gary Kochubka, STANDARD & POORS
Damian Von Stauffenberg, MICRORATE
Howard Finkelstein, AKERMAN SENTERFITT
Jean-Phillipe de Schrevel, BLUE ORCHARD FINANCE
Mary Ellen Iskenderian,WOMEN’S WORLD BANKING
Geoff Davis, UNITUS
Stephen Viederman, NEEDMOR FUND & CHRISTOPHER REYNOLDS FOUNDATION
Deborah Drake, ACCION INTERNATIONAL
Arnaud Ventura, PLANET FINANCE
Cathy Rowan, THE MARYKNOLL SISTERS and TRINITY HEALTH
Father Seamus Finn, MISSIONARY OBLATES OF MARY IMMACULATE