[I am honored to host Matt Flannery as my first guest blogger. My October 2 post about Kiva generated copious commentary and tweeting. Accepting a guest strays somewhat from the construct of this blog, but seems highly appropriate in this case.--David Roodman]
This is Matt Flannery, Co-Founder and CEO of Kiva.
I recently read and enjoyed David’s article “Kiva Is Not Quite What It Seems”. The article is well-written and thoughtful, and has generated a lot of passionate responses. I'm writing here because I thought it would be helpful to hear from Kiva, as part of this dialogue, to increase understanding about what Kiva does and where it is going.
I see Kiva as a public property, “owned”, in a sense, by its three main constituents---the entrepreneurs, the lenders and the MFI partners, all of whom we serve. It is a delicate balance to serve all three at once. Sometimes it may seem that, for a particular decision, one has to benefit at the expense of the others. However, this is a short-sighted way of looking at things.
I firmly believe that, in the long run, each of Kiva’s constituencies want the others to be well-served, as they are all inter-connected, and rely on each other in their shared efforts towards poverty alleviation. What is needed to create this environment of mutual support is rich communication, promoting greater understanding around the challenges and needs of each constituent.
The Kiva website serves as the hub for that communication to take place. However, large gaps in communication still remain. We at Kiva have a long way to go to increase the level of understanding between the three parties and this article sheds some light on certain areas where we can improve.
Most prominently noted in David’s article is the challenge of communicating to our user base regarding the mechanics of how Kiva functions. Most of Kiva’s users have very casual knowledge of microfinance. In fact a large percentage of them had never heard of microfinance before Kiva and had never donated or lent to an international cause. This presents a major challenge in terms of simultaneously educating them and empowering them to make an impact in our field.
Our approach to this challenge has been to provide a very easy way to engage users, and provide a wealth of information to them as they become more curious. The oversimplified nature of our home-page reflects this broad strategy. Certainly the Kiva homepage does not describe the nuances of microfinance or Kiva's approach. In fact, it largely ignores the details. However, it is our intention to provide every last detail of the mechanics of Kiva to those curious users. My hope is that, for those that care to delve deeper, users can learn all they need to know---and more---by looking at our website alone.
A main focus of the article has to do with the fact that most of Kiva's loans are disbursed before they are funded on the Kiva site, which is true. The article points out, rather accurately, that most lenders on the site do not understand this. It goes on to imply that Kiva is taking an active role in perpetuating this misperception.
My response to this critique is two-fold. First, I believe that allowing pre-disbursal is necessary for the success of this model. Second, I think we can do better at educating our users about how and why this is the case.
When Kiva started in 2005, we were working with a pastor in Uganda who had no other source of funding for loans. As he relied on Kiva funding only, it was easy and necessary to wait for the Kiva funds before handing out loans, thus all of the first loans on Kiva were disbursed after they were funded on the Kiva website. In addition, our early Field Partners in 2006 and 2007 also needed to wait for the money because they had no other sources of funding. Post-disbursal was the norm at Kiva in the early days. A lot of the writing, and graphics, on our site, were produced during those early days. For instance, the "How Kiva Works" page was created to describe the Kiva model in the days before pre-disbursals.
As Kiva grew, and millions of dollars poured in through the website, we began to work with larger MFIs who could handle the sums of debt capital that the Kiva Lender community was able to offer. As loans began to fund quickly, MFIs began to expect and depend on Kiva loans being funded. Instead of waiting, MFIs began to disburse these loans in advance, assuming that the funding by Kiva Lenders on the website would take place. Good MFIs are client-driven. To make their clients wait unnecessarily would have been bad customer service. So, for many of our Field Partners, pre-disbursal became the norm.
Rather than outlaw this practice, which allowed MFIs to be more efficient and better serve their clients, Kiva decided to just make the practice transparent on the website, and to let the lenders decide whether to fund a pre-disbursed loan or to withhold. Hence, we created a system whereby MFIs were required to list the disbursal date on each and every "Make a loan" page, beside the rest of the information we considered important for lenders before making the decision to lend. This was our way of communicating this important detail to our users. We also listed detailed descriptions of the mechanics of Kiva in the Help Center, for those curious about loans that have already been disbursed. Kiva Our Fellows also blogged about this practice and created videos explaining how the process really worked. These, we believe, were great efforts at increased transparency.
However, we can still do better. And this brings me to my second point, where I agree with Mr. Roodman. The "How Kiva Works" page, at the time of this piece, was rather inaccurate because it implied a sequence where entrepreneurs get funding only after a loan is funded on the site. Although the "Make a Loan" pages contained the disbursal date, the "How Kiva Works" page was over-simplified to a fault. To address this, in the short term, we updated the page last week. It now contains more detail with regard to pre-disbursals. You might want to check it out. [See how item 2 has changed since this 2008 version--DR.]
This was just a short-term patch on a problem we had let linger on the site since the early days. In the future, we will update that page and others to bring more clarity to the new user on how things currently work. So, this is one situation where constructive criticism has contributed to a strengthening of Kiva as an organization. I'd like to thank Mr. Roodman and the readers of the article for their help here.
There are a couple other areas that I would like to clarify.
The article also claimed that "Kiva charges 2%" on loans made through the platform, to our MFI partners. This is not true. In fact, Kiva does not charge any interest to its MFI partners, and passes along 100% of the loan funds raised on the site to its MFI partners. That was just an innocent mistake on the part of the author.
Further, I want to assert that Kiva doesn't fear that complete honesty would undermine growth! In my humble experience, I've learned that honesty creates stronger bonds between the organization and its constituencies. Time after time, this lesson has been reinforced, and it is a lesson which affects many operational decisions within the organization to this day.
Kiva doesn't believe that lending is a silver-bullet, poverty alleviating mechanism. We do believe, though, that lending is one meaningful tool in a larger set of tools that the development community can use to alleviate poverty. Currently, the lending experience is highlighted on our website, while "plus services" such as savings and education are not. This doesn't mean that we don't believe they are beneficial or that they wouldn't be successful on the web. Last year, I spent a few weeks in Cambodia and witnessed dozens of women who were given a savings account for the first time, thanks to our MFI partners there. Rather than save under the mattress, they were creating accounts with an MFI. In a dangerous place like Cambodia, this is an incredible service.
I can imagine that one day Kiva will highlight savings and education on our site. At this early stage, we haven't been able to create the functionality to enable that. Getting lending right has been quite challenging, as you can imagine. Once we feel like we have nailed that experience, you can imagine that other services will be offered through Kiva.org. Many of our partners already offer such services to their clients and we are open to help fund those services at some point in the future. However, it may be a while before this expansion takes place as our current product has a great deal of potential still to achieve.
One of the contributions that Kiva has made is to demonstrate that empathy increases generosity. The pictures and stories on the Kiva site increase understanding between various parties that would otherwise operate in completely different universes. When understanding increases, so does empathy. When empathy increases, so does generosity. People are inherently more generous towards people and causes they understand.
Kiva has played a small role in increasing understanding between the constituencies on the site. However, we have a long way to go. As technology spreads throughout both the developed and the developing world, I hope to see the strength of the connections increase as well. You can imagine that, as wire transfer costs decrease, we could see a loan funded on Kiva the day that it is disbursed. You can also imagine that deep lender to borrower communication can be widespread on the Kiva site. Kiva has entered the game early and there is so much further to go.
I will conclude with a compliment to Mr. Roodman. I really enjoyed his article and, in particular, I learned about the history of child sponsorship in greater detail. We have much to learn from that history. We can learn what worked well with child sponsorship and also what we should avoid.
In particular, we need to avoid playing the role of "playwrights", as the article describes. In my experience, there is no greater play than reality. Any attempt to fictionalize falls short, and never does reality the service that it deserves. With the help of technology, I don't think Kiva needs to repeat the failures of child sponsorship. We don't need to be playwrights on the Internet. We are going to do our best to avoid that trap, but certainly value the ongoing help of a critical and engaged user base along the way.
Kiva.org CEO and Co-Founder