Monday, October 17, 2005

An interesting new micro-finance model: Kiva 

Suhit sent me a link to Kiva, a VERY interesting new start-up venture in the micro-finance space. I have been doing quite a bit of thinking about the industrial micro-finance/micro private equity space. Traditional micro-finance is on the verge of maturity and the big names have no problems raising capital anymore. I have, however, been looking at new models of micro-finance and boy, I haven't seen anything as innovative as Kiva in recent times.

First things first though. Kiva does not promise returns to investors. It simply is an innovative model to fund small businesses using charitable loans. The modus operandi? You, a prospective donor, start an account with Kiva. You then scrutinise the various businesses Kiva has put up on its website and find something that interests you. You can then loan anything upwards of $25 to the business. Loan, mind you, which means you will get your money back after a certain stipulated period. The downside is that you will not receive any interest, but if it's $25 that can make or break someone's livelihood in Kenya, who cares?

Obviously, it would be better if we could get some minimal interest on our investment, to ensure sustainability, but I think this is a fabulous beginning. Kiva will, however, charge the entrepeneurs interest in order to cover overhead costs, which is vital to Kiva's sustainability.

I am personally looking through some of the businesses to make a small investment, purely to see how the process works. Obviously, if the business works, and I get my money back at the end of the loan period, there is almost no doubt I will reinvest the money in another business. So, if any of you readers are interested in micro-finance and are looking at interesting new models, head over to the Kiva FAQ. Familiarise yourself with the Kiva model and then consider making your first micro-investment in an African business.