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The Nichols Hall auditorium was abuzz Fri., May 7, during the visit of the latest guest of the Harker Speaker Series, Matt Flannery, CEO of Kiva. A ground-breaking organization in the fight against international poverty, Kiva utilizes transactions known as micro-loans (loans of small amounts, typically $25 or more) to enable people in remote, impoverished areas to start their own businesses and have a chance at success.
A graduate of Stanford University and a former computer programmer for TiVo, Flannery shared the story of how he went from “helping people pause live TV” to helping poor people in far-flung countries become entrepreneurs and start new chapters in their lives. To date, the total value of all loans made via Kiva has surpassed $136 million, with a repayment rate of 98.57 percent.
When it comes to small loans, Flannery said, “people are better than banks. People are able to take on more risk than banks, so if you are able to aggregate thousands of people who lend 25 dollars each, they can diversify their funding across many different businesses and many different places.”
Those thousands of people are also more able than banks to absorb risk, which has the added benefit of lowering interest rates.
Flannery’s interest in micro-finance began while he was still working at TiVo in the early 2000s, when his then-fiancée, Jessica, took him to a talk by micro-finance guru Dr. Muhammad Yunus, who lent small amounts of money to the working poor in Bangladesh. The loans were paid back, defying the many predictions to the contrary.
Inspired, Matt and Jessica traveled to Africa, which he described as “a place full of entrepreneurs.” There, they encountered many people with great ideas who lacked the capital to realize their dreams. Upon returning to the United States, the two decided to try to generate a stock market in the remote area they had visited.
After generating a business plan, they took the idea to venture capitalists. When the couple were unable to explain how they could make the idea profitable, they were advised to try talking to charity organizations. But when they presented their concept to those groups, they were told, ironically enough, that it more closely resembled a business.
Moreover, due to security concerns and legal restrictions, the plan to send large amounts of money to remote areas was deemed too risky.
With no funding and the possibility of their new venture being illegal, Matt and Jessica decided to pursue the idea on their own as a hobby. “Instead of starting a company, we just did it through our own personal checking account,” Flannery said. After making contact with a pastor in Uganda named Moses, they decided to have him take pictures of the people receiving their loans and post updates on their progress at an Internet café.
The loans went to such people as a goat herder, a restaurateur and a fruit stand owner. Flannery built a software system to invest in the businesses they helped start, and encouraged his friends and family to buy shares.
“It’s probably the best donation you’ll ever make, because maybe you’ll get it back,” Flannery told them. “But it’s probably the worst investment you’ll ever make because there’s no chance of making money here, and you’ll probably lose some of it.”
The investments worked, however, and the loans were eventually paid back. Flannery recalled having conversations with his friends about reading the online updates on the businesses they funded. “We’re really on to something,” he remembered telling himself, “because I’ve turned my group of lazy friends into people that really care about something.”
In October 2005, Flannery left his job with TiVo to devote all of his time to the newly founded non-profit Kiva.
“The idea of person-to-person lending on the Internet was a new concept and we were at the very beginning of that,” he said.
When Dr. Yunus won the Nobel Peace Prize in 2006, interest in micro-finance reached new heights. Kiva was soon being covered by CNN, CNBC, the New York Times and the Oprah Winfrey Show. By 2007, funded primarily by donations, Kiva had lent more than $10 million.
Recently, the micro-finance world has been experimenting with sending loans via cellular phones, which helps alleviate labor costs. Currently, the process is much more manual, with loan officers going out into the field and setting up loans in person, resulting in more overhead. Kiva itself has begun lending more to students, a type of fund the group can take on because its capital is more flexible. That is necessary since student loans can take an especially long time to pay back. The organization has also recently funded more green ventures, such as loans for solar panels instead of kerosene lamps or charcoal stoves.
Before closing his talk and opening the floor for questions, Flannery explained that Kiva was able to grow in part because its founders pursued the idea not as a business but as something they loved to do.
“We kind of gave up on Kiva as a business idea, and started thinking about it as just something we love to do,” he said. “And because of that, I think we really enabled it to succeed and to grow, because we didn’t put pressure on it to be a career, or put pressure on it to be really successful.”