Microfinance Competition

This post is inspired by my friend Jon who sent me this question:

Kiva has US entrepreneurs now? I don't think that is helpful. Now your DR would-be entrepreneurs will have to compete against business plans by US citizens - who I would guess are likely better educated and funded. I'm curious as to what your perspective is.


My perspective:

During our three days of training here in DR, one of the main points that we emphasized is that Kiva is a competitive market. That is, we are posting profiles for real live entrepreneurs and we’re competing for loan funding. In reality, up until now, competition hasn’t truly been a problem. Esperanza International has been partnering with Kiva for 29 months and in that time we’ve only had two (I’m almost positive) loans that weren’t funded; for reference, 5,359 associates have been funded via Kiva.

Nevertheless, we don’t expect that to be the case forever. More and more microfinance institutes (MFIs) are partnering with Kiva and other MFIs such as Opportunity International are developing their own Kiva-esque lending model (http://www.optinnow.org/?utm_source=opportunity.org&utm_medium=promotional&utm_campaign=opportunity.org). Furthermore, growth of new lenders is apt to slow. As those forces converge, Kiva will become more of a competitive market. Expecting these changes, Esperanza and the interns are working to sharpen our competitive edge through the following ways.

Quality profiles:

A profile can be either for a group or individual entrepreneur. Since Esperanza follows the Grameen model of microfinance lending, the majority of our profiles are for groups. We do, however, fund some individual loans in special cases, but I believe you cannot take out an individual loan until you’ve successfully repaid a few group loans first.

In the case of a group loan, we interview one entrepreneur (usually the group’s coordinator) and write their story as a representation of all the entrepreneurs in the group. It’s important that the story make clear what the business is, how the loan will be used, what her loan history is, how her life has changed as a result of this loan, what her ambitions and dreams are, and how she intends to achieve them. We also like to add in personal details such as age, descriptions of the family and house, and hobbies. Kiva is about peer-to-peer lending and we try to facilitate as personal an experience as we can. Since lenders do assume risk, we try to make it clear how the entrepreneurs will be specifically be using the loan so lender can loan with more confidence.

To view Esperanza’s profiles, follow this link: http://www.kiva.org/app.php?page=businesses&partner_id=44&status=All&sortBy=New+to+Old


Quality journals:

Part of the Kiva partnership requires every MFI to write at least one update per profile posted. These journals are mutually beneficial. They allow the lenders to see how their loans were used, what’s changed, what problems entrepreneurs have or have overcome, and what the plans are for the future. They build continuity for the peer-to-peer relationship and make the experience more evidently real. We try to update both with logistical information concerning the businesses as well as anecdotes and extra photos. The journals are also a prime way to increase lender retention and commitment to Esperanza. If a lender feels invested in Clara (the jewelry maker I blogged about), then they’re apt to lend to her again in the future. Similarly, they’re more apt to lend to people in the same organization because there’s a feeling of connected and focused impact.

In each journal, we post the link to the profiles of Esperanza’s other profiles so people can easily lend.

One of the joys of working with Kiva is seeing how easy they make everything. The interface to loan as well as to post profiles is straightforward and simple, which is important because red tape and confusing logistics can be easy deterrents.


Good pictures

In the past, some of our photos have been rather awful. Who wants to lend to a group of angry looking women with shadowed faces who are standing against a white wall!?! The profile photo is a key because it’s the first thing a lender sees. If a photo is mediocre at best, then a lender is not apt to click and read a potentially fantastic profile. It’s also a wonderful way for lenders to understand what life is like in the DR. We try to take photos in the communities and ideally in front of one of the entrepreneur’s businesses. For example, these are some of the photos I linked to in one of my journal updates: http://picasaweb.google.com/acherniss/LosLirios4#

Improving our field partner profile on Kiva

If you click on any Esperanza loan, you’ll see a link to Esperanza’s profile. I’m not personally working on this aspect, but I’m aware that our Kiva coordinator is working to make it clear how Esperanza functions and what makes it special as an MFI. Below, I’ve listed the primary points of distinction that Esperanza has. We not only try to emphasize these in the partner profile, but we also try to write about them in the entrepreneur profile and journals.

Women

Esperanza’s mission is: to free children and their families from poverty through initiatives that generate income, education and health, restoring self-worth and dignity to those who have lost hope. Like many other MFIs, Esperanza has found that the best way to do this is by targeting women as they make sure that the loans and profits benefit either the business or the family, nothing else.

Emphasizing Haiti/Haitian immigrants

Esperanza International is the only MFI that operates in both the Dominican Republic and Haiti. Interestingly enough, our Haitian profiles are always funded much more rapidly than our DR ones. This makes sense on one level because Haiti is the poorest country in the Western Hemisphere and people want their efforts to support the parts of the world that need it most. However, a large percentage of our clients in the DR are Haitian immigrants (about 44% in the Los Alcarrizos office). By emphasizing this point, we hope to increase understanding of the Haiti-DR relationship and draw more attention to Esperanza’s work.

Emphasizing Christian Organization

In terms of amount loaned, Kiva Christians is the second biggest group of lenders, proceded only by the atheist network. Thus, rather than downplaying the fact that Esperanza is a Christian organization, we aim to make that fact know as people like to support organizations and entrepreneurs who hold similar worldviews.

Emphasizing microfinance plus

While microfinance is one tool in the effort to end poverty, other tools are needed as well. Microfinance plus is everything in addition to microloans. For Esperanza this includes home improvements, health care, education, business training, and social mobilization. A lender might be more confident that an entrepreneur will repay and improve his/her life if such programs exist. http://esperanza.org/us/index.php?option=com_content&task=blogcategory&id=2&Itemid=5

Why?

It is important that we work on these aspects because up to one-third of our loan portfolio can be funded through Kiva. While neither Kiva nor lenders collect interest on their loans, the associated MFIs do. This decision on Kiva’s part was made for two reasons. The first is that to do so would have required Kiva to file as an actual bank, which would have taken a lot of time and was not necessary. Instead, Kiva is a 501(c)3 non-profit—it is significantly easier to register as such. The second reason is that Since Kiva is merely a platform, not a MFI, Kiva is ok with letting the MFI’s keep the interest from the loans. This interest allows the MFIs to cover overhead costs, counter inflation, offer microfinance plus programs, and grow.

In response to Jon’s question specifically:

In terms of the US lenders, I think it's great that we've brought microfinance and the Kiva partnership to the US as it's supposed to serve those who the regular financial system does not/cannot and those people exist the world over. While I think people will want to lend to their fellow Americans, there is an exotic/adventurous aspect of lending to a developing country...and I think that will work in our favor. Furthermore, in terms of impact per dollar, it is much greater in developing countries as the cost of living is lower and the need is generally greater. At the same time, Kiva is used all over the world, so the addition of the United States might not be that big of a problem. Furthermore, I think it's great that a family in Uganda can loan to a business woman in the US--it helps break down crucial barriers and it helps people see that there is need everywhere. AND, everywhere in the world, people are trying to improve their lives, the lives of their family, and the lives of their community "poco a poco."