Kiva is a certified 501(c) (3) non-profit public-benefit corporation based in California. Kiva's premise is to facilitate funding for microfinance operations throughout the world. Kiva does this by connecting lenders to low-income entrepreneurs in developing countries through the internet. In addition to facilitating the monetary transactions involved in making long distance loans, Kiva takes on the essential role of collecting and presenting data on both microfinance institutions and their entrepreneurs to provide a "highly transparent lending platform for the poor".

Visit the Kiva Website

1. First, a lender registers with Kiva to create a 'lender account' on the Kiva website. Then a lender can browse through entrepreneurs in need of a loan and specify how much money they want to lend to their entrepreneur of choice. Kiva provides detailed information for each of the potential borrowers registered on their microfinance network. A lender can select what group of borrowers they would like to sponsor, and then loan either all or a portion of the amount that the borrower needs. Lenders can loan as little as $25 towards the entrepreneur or finance the entire cost of the operation.


2. Once lenders have identified their borrowers and specified their loan, all transactions are handled through PayPal. Loans can be made initially through PayPal by credit card. A lender does not have to establish a formal PayPal account in order to initially make their loan in this way. Once the loan amount for a given borrower been received in full, Kiva will transfer the money electronically to the partner microfinance institution that works in the same local area as the borrower.


3. The microfinance institution will then administer the loan to the borrower, who will use the money to establish a microenterprise. Loan repayments are paid by the lender to the microfinance institution in installments, and Kiva regularly updates the lender on the progress of the loan repayment and the business. One hundred percent of the initial payment is guaranteed to go towards the entrepreneur that the lender specifies. This is made possible because PayPal has agreed to act in partnership with Kiva by waiving the transaction fee for the money.


4. Loans are repaid in installments by the entrepreneurs to the microfinance institutions. As this occurs the microfinance institution transfers the money and credit to the lender's account for the sum of money that they originally loaned.


5. The lenders now have the option of withdrawing this money or choosing another borrower to lend to. The lender must then set up a PayPal account in order to withdraw their money.

Though Kiva does not charge interest to their partner microfinance institutions for their loans, the microfinance institutions themselves charge interest to their entrepreneurs. Once a loan is fully repaid to a microfinance institution, the microfinance institution will take off and keep the interest that they make on the loan before they transfer the loan back to the lender through PayPal. The lender receives the same amount of money that they loaned, while the microfinance institutions keep the interest to help support their operations and staff.

Kiva current works with 87 partner microfinance institutions in diverse areas throughout the world. A full list and description of each microfinance institution is posted on this link to Kiva's website: http://www.kiva.org/about/partners/. This list can be sorted according to criteria such as 'field partner risk rating,' 'name', 'time on Kiva' so that the lender can research the institutions easily.

Kiva has identified three sources of risk involved in lending online through Kiva's lending scheme:

1. entrepreneur risk,
2. field partner risk,
3. country risk

In all cases the risk associated with lending through Kiva is low. As stated on the Kiva website, "of the $3,962,485 of loans with completed loan terms, the default rate is 0.1%". This low rate can largely be attributed to the microfinance model and methodology that Kiva's partner institutions follow (to read more about the way that the microfinance model reduces risk, refer to the background section).

Kiva, however, admits that "past performance does not guarantee future results." Because of this, Kiva is committed to collecting and publicly presenting data/information on all their partner institutions. Kiva has developed a multilayered evaluation scheme, and publishes a "Kiva Risk Rating" report on each microfinance institution. Please see Kiva's site for more details:

Risk Overview: http://www.kiva.org/about/risk/overview
Statistics: http://www.kiva.org/about/risk/statistics/

Each microfinance institution is selected and monitored by Kiva in three ways. First, Kiva screens each prospective microfinance institution based on four criteria, called 'Kiva's Minimum Requirements'. As stated on their website, these requirements specify that each microfinance institution must

1. have a mission of lending to the poor for a social purpose with relatively low interest rates
2. be able to accept US dollar denominated debt capital from US lenders and manage a reasonable degree of currency risk,
3. be cleared of the US Department of Justice Terrorist Exclusion List and the Treasury Department's list of "Specially Designated Nationals and Blocked Persons," and
4. provide Kiva with legal incorporation registration documents recognized by the local governments.

Second, Kiva will assign each partner a risk rating that becomes available to lenders through the website. This rating is based on past performance and measures the estimated repayment risk associated with the partner. As stated on the website, Kiva uses the following evidence, based on past information and their partner's relations with other organizations/institutions, to determine a partner's reliability: (1) recent financial audits, credit ratings, and independent evaluations, (2) information from reputable outside funder and network affiliations, (3) organizational age and sustainability, and (4) existing loan portfolio size and risk. Kiva also generates an evidence base for each of its partner microfinance institutions based on their performance with Kiva. These criteria include commissioning of local audit firms to randomly check several entrepreneurs to ensure data accuracy, response from Kiva fellows journaling coverage, who stay with the field partner to visit entrepreneurs and write journal updates about the impact of the loan and report on data accuracy, repayment performance of the microfinance institution to Kiva over time, and bank statement reviews

Kiva's presents the evidence supporting the partner institution's repayment reliability in a basic scheme of stars where a 1 star rating means that there is very limited evidence supporting the partner institution's repayment reliability, and a 5 star rating means that there is very significant evidence supporting repayment reliability.

Lastly, Kiva provides microfinance intuitions with incentives to perform well by setting monthly fundraising limits. A partner's cap on fundraising for entrepreneurs each month is based on their 'Kiva Risk Rating' assessment. Those with the highest risk rating from Kiva, for example, can post close to 100,000 dollars in loan requests, while those who have the lowest risk rating start at 10,000, and are gradually increased their allocation as their partnership with Kiva goes on and they earn higher risk ratings. http://www.kiva.org/about/risk__kivaRole

It is the responsibility of the partner microfinance institutions to select the entrepreneurs that request loans from Kiva. The microfinance institutions that Kiva selects operate on a local scale in the community where the borrowers are selected from. This enables the microfinance institutions that partner with Kiva to screen and approve entrepreneurs who have expressed an interest in receiving a microloan and starting a micro business. As stated by Kiva, each entrepreneur undergoes a rigors application process, administered by the microfinance institution, and must fulfill certain criteria before they can be considered eligible to receive a loan. In line with the general practice of microfinance, as outlined in the background section, Kiva's partner institutions tend to regard groups of 5 or more women as their 'lowest risk' entrepreneurs. While many of the entrepreneurs that are selected for receiving loans through Kiva fulfill this criterion, groups of men, mixed sex, and even a single entrepreneurs have also been confirmed to be a reliable lender and selected by the microfinance institution to be presented for a loan on Kiva.

In addition to screening entrepreneurs, Kiva's partner institutions are also expected to facilitate monetary transactions between Kiva and the borrower and regularly report to Kiva the 'impact of and issues' surrounding each loan. The field partners report the impact and issues in a "journal" that appears in the Kiva website and also in the lender's portfolio*. http://www.kiva.org/about/risk/overview

As is stressed on the Kiva website, and also documented from other sources, the practice of microfinance has significantly high loan repayment rates from entrepreneurs.

In addition to the controls that Kiva places on the microfinance institutions that they select, a lender is also able to investigate each microfinance institution for themselves through Kiva's website. Kiva enables this by providing a transparent information and statistics on each of their partners. Kiva presents their list of 87 field partners with accompanying information on field partner risk rating, amount raised, time on Kiva, delinquency rate, default rate, and status.

In the case of an entrepreneur's default, for example, Kiva requires their partner institution to fully disclose the reasons that led to the borrowers default. A lender looking to minimize the risk in his/her loan can therefore check the statistics published on the microfinance institution and their entrepreneur before committing their loan. As advised on Kiva's website, a lender can also choose to minimize risk by diversifying their portfolio. In this case, instead of paying the full loan amount requested to one group of entrepreneurs, a lender can contribute smaller amounts to the loan funds of several diverse entrepreneurs, with different projects, ratings, number of group members, and in different locations. http://www.kiva.org/about/risk__kivaRole