User:Cfherron/Sandbox

One Acre Fund

File:Kiva.org logo.svg
Company type	Non-profit organization
Industry	Economic Development
Founded	Month Year
Headquarters	City, State, United States
Key people	Andrew Youn (Founder)
Website	www.oneacrefund.org

One Acre Fund is an organization that allows people to lend money via the Internet to microfinance institutions in developing countries which in turn lend the money to small businesses. It is a 501(c)(3) non-profit organization headquartered in San Francisco, supported by donations from its users and through partnerships with businesses and other institutions.

How it works

Kiva allows microfinance institutions around the world, called "Field Partners", to post profiles of qualified local entrepreneurs on its website. Lenders browse and choose an entrepreneur they wish to fund. Kiva aggregates loan capital from individual lenders and transfers it to the appropriate Field Partners to disburse to the entrepreneur chosen by the lender. As the entrepreneurs repay their loans, the Field Partners remit funds back to Kiva. As the loan is repaid, the Kiva lenders can withdraw their principal or re-loan it to another entrepreneur.

Kiva partners around the world (september 2006)

Lenders' funds are transferred to Kiva through PayPal, which does not collect its usual fees in this case. It is possible to pay by credit card through PayPal's website, even without a PayPal account, but a PayPal account is needed to withdraw funds. Field Partners charge interest to their borrowers, although Kiva claims to keep track of how much interest is charged and will not work with those charging unfair interest rates. Kiva lenders do not receive any interest because Kiva is not registered with the US Government as a broker. Kiva claims that its borrowers have a historical default rate of 2.5%.

Organization and team

Kiva was founded in October 2005 by Matt and Jessica Flannery. The couple's initial interest in microfinance was inspired by a 2003 lecture given by Grameen Bank founder Muhammad Yunus at Stanford Business School. Jessica worked at the school and invited Matt to attend the presentation; this was the first time he had heard of microfinance, but it served as a “call to action” for his wife. Soon after, Jessica began working as a consultant for the nonprofit Village Enterprise Fund, which worked to help start small businesses in East Africa. While visiting Jessica in Africa, Matt spent time with his wife interviewing entrepreneurs about the problems they faced in starting ventures and found the lack of “access to start-up capital” was a common theme. After returning from Africa, they began developing their plan for a microfinance project that would grow into Kiva, which means “unity” in Swahili or "nice" in Finnish. Kiva is run by a team with experience in microfinance and technology.

Publicity

Author Bob Wood, wearing a traditional African dashiki, is a staunch proponent for Kiva Loans.

• Author Bob Wood is a prominent advocate for Kiva Loans. [3]
• Nicholas D. Kristof wrote about the organization in "You, Too, Can Be a Banker to the Poor", New York Times, March 27, 2007.
• Former US President Bill Clinton exhorted the students of Brandeis University to use Kiva in a speech given on December 3, 2007.
• Frontline and The Oprah Winfrey Show had segments devoted to Kiva.
• Kiva is mentioned in Giving: How Each of Us Can Change the World, by Bill Clinton.
• "Lending hope over the Web" Los Angeles Times archive article, October 18, 2007
• The founders were on the Oprah Winfrey Show November 2007 "Oprah Features Kiva Founders".
• "Kiva PR Director Fiona Ramsey" was interviewed on "CBC Radio One's, SearchEngine".
• Greta Van Susteren is a supporter of Kiva and has made loans through the organization.

Disclosure

According to its web site, Kiva quotes interest rates as the "self reported average, annualized, flat interest rate in real terms charged by the Field Partner to the enterpreneur."[4] This means that interest rates are quoted using the flat calculation method. Flat rate calculations, which are based on the amount of money the borrower receives at the beginning of the loan rather the average amount the borrow has access to during the loan, have been outlawed in developed countries (see for example the Truth in Lending Act).

Truth in lending laws require interest rates to be disclosed using the declining balance method of calculation. Chuck Waterfield, designer of Microfin, a widely used financial modeling tool for MFIs, asks "Why did such a system appear in {microfinance} lending? The answer is obvious and cannot be debated: it allows the institution to charge nearly twice as much interest for the quoted interest rate as with the declining balance method." Truth in lending laws also require additional charges and fees that borrowers must pay to access their loans to be added to the disclosed APR. Many microcredit institutions charge 2-4% 'administration' or 'origination' fees, often on loans as short as a few months. Although these fees can significantly increase the actual cost of borrowing, Kiva does not include them in its quoted interest rates.

Because flat rates are charged as a fixed fraction of the money borrowed rather than as a fraction of the declining amount actually in use, pre-payments by borrowers don't result in a reduction in total interest. Instead, pre-payments further drive up the borrower's APR and reduce her incentive to pre-pay. These distortions in incentives are particularly problematic for microentrepreneurs, whose livelihoods depend on effective and timely rotation of their working capital.

Statistics

As of March 8, 2009, Kiva has distributed $63,010,010 in loans from 458,538 lenders. A total of 90,201 loans have been funded. The average loan size is $425.83. Its current repayment rate is 97.79%. According to Alexa, Kiva's website typically ranks well into the top 25,000 websites on the Internet.

Sample loans

Fisherman seeks refrigerator

• 51 year old fisherman with three children in Azerbaijan
• 12 years of experience
• Seeks 12 month loan for $725 USD in order to purchase a refrigerator
• Has already successfully repaid two prior microloans

Loan to expand restaurant business

• 27 year old seeks financial independence
• Desires $475 USD loan to improve existing restaurant
• Has already successfully repaid one previous loan

Controversy

Some people, including microfinance pioneer Muhammad Yunus, argue that the interest rates of many microcredit institutions are unreasonably high. In his latest book he argues that microfinance institutions that charge more than 15% above their long-term operating costs should face penalties.

Kiva defends the interest rates of its lenders, however, saying its field partners provide much better rates than local alternatives, but must charge what they do because "the costs of making a micro-loan in the developing world are higher versus larger loans in the West."[5]

In July 2008 Kiva discovered that fraud had taken place with one of their 112 lenders, an African organisation based in Cote d'Ivoire. They suspended activities with the organisation and after an investigation followed by the negotiated repayment of loans they cut all ties.

See also

• Flat rate (finance)
• Microcredit
• Microcredit Summit Campaign
• Social entrepreneurship

External links

• One Acre Fund
• Microfinance Transparency
• VIDEO: A Fistful Of Dollars: The Story of a Kiva.org Loan
• VIDEO: Kiva in Nepal: A Field Visit
• VIDEO: The Kiva Story
• Several stories about Kiva on PBS's Frontline/World
• Podcast interview with Jessica Jackley Flannery, Feb 2008
• Interview with Premal Shah, President of Kiva