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Business Model of Kiva

by Noyal Sharook
peer to peer money lending business

Often, applying for loans is out of the question for aspiring business owners from third-world nations and underprivileged areas. The reason for this is that they have no credit history and, in some cases, little to no access to formal financiers. Fortunately, microlending applications like Kiva, a peer to peer lending platform software are here to improve the situation for small businesses that are in desperate need of funding. But how does the American online microlender Kiva actually operate?

Through incredibly user-friendly mobile applications, organizations like Kiva, which offers personal microloans, give underserved entrepreneurs representation and critical funding. They contribute to the growth of the struggling but tenacious small business sector, which provides individualized goods and services.

Matt Flannery and Jessica Jackley, a husband and wife team who shared a passion for addressing global poverty and economic inequality, founded KIVA in 2005. The organization’s goal when it was founded was to connect people who were willing to lend small sums of money (microloans) with business owners in impoverished communities who had little access to traditional financial services.

“Why KIVA was founded”

Aware of the enormous difficulties faced by people and communities living in poverty, particularly in developing nations, KIVA was founded. For entrepreneurs who were frequently shut out of the formal financial system, Matt Flannery and Jessica Jackley saw a huge unmet need for access to capital.  willingness of individuals to meaningfully impact the reduction of poverty  .

KIVA is a nonprofit with the goal of reducing poverty by bringing people together through lending. Its peer to peer lending platform software shows that anyone with an internet connection and $25 to spare can start a lending business and help entrepreneurs all over the world. The democratization of lending cuts across national borders and gives people everywhere a chance to have a real, lasting impact.

A groundbreaking nonprofit organization called KIVA proposes a unique business model to connect people all over the world to entrepreneurs in underserved areas. Their business model is based on the straightforward but viable notion that small loans can significantly improve the circumstances of aspiring business owners. To better understand how KIVA operates, we will examine its business practices in this section.

1. Application for Online Lending:

The online lending platform is at the heart of KIVA’s operations. This  acts as a link between lenders (also known as “KIVA supporters”) and business owners looking for microloans. Anyone with an internet connection  can join this global lending community thanks to the platform’s user-friendly interface.

2. Field Collaborations:

Microfinance institutions (MFIs), non-governmental organizations (NGOs), and other community-based organizations are a few of the many local field partners that KIVA works with. These field partners are essential to KIVA’s operations because they find potential borrowers, carry out risk analyses, disperse loans, and collect repayments. Through these alliances, KIVA can reach underserved areas and localize its lending operations.

 3. The Choice of Borrowers:

Borrowers from KIVA come from a variety of backgrounds and businesses. They represent a number of different industries, such as agriculture, retail, education, and healthcare. On KIVA’s platform, borrowers share their stories, photos, and funding requirements, giving lenders a chance to connect with them and learn about their goals.

4. Loan Transfer and Repayment

Field Partners receives funds from lenders as capital without charging interest, enabling the revolving of loans made to deserving borrowers. Through the expansion of their initiatives, Field Partner organizations are given the freedom to flourish and improve the quality of life in marginalized communities.

In order to cover their operating costs, Field Partners frequently charges interest fees on loans that they have already made to previous borrowers. These Field Partners make up more than 60% non-profit institutions, and they only charge a small interest fee to cover overhead. Neither Kiva nor the Field Partners it partners with charge interest to their lenders or borrowers. 

5. Accountability and openness

KIVA upholds a high standard of accountability and transparency in its business practices. The status of their loans and how money is being used are both fully disclosed to lenders. This openness strengthens the organization’s dedication to integrity by fostering trust and a sense of belonging among all stakeholders.

KIVA’s revenue model focuses on primarily covering its operational expenses while redirecting the majority of funds in providing micro loans for entrepreneurs who are unable to afford due to the current credit score system.

Revenue Model

  1. Donations: Generous contributions from individuals, foundations, and businesses account for a sizable portion of KIVA’s income. These donations are essential to maintaining KIVA’s operations and advancing its mission.
  1. Lender Optional Contribution: People who use the KIVA platform to make loans have the choice to increase the loan amount by a small amount. Despite being modest on an individual basis, these voluntary donations add up to a significant portion of KIVA’s revenue.
  1. Grant Funding: To support particular projects, expand into new areas, and increase its impact in addressing global challenges, KIVA actively seeks grant funding from a variety of sources, including governments and philanthropic organizations.
  1. Partnership Fees: KIVA works with field partners, frequently NGOs and microfinance organizations. For the services rendered by KIVA’s staff through these partnerships, a small fee or percentage-based compensation
  1. Interest from Repaid Loans: Thanks to KIVA’s revolving loan model, the organization’s revenue can be boosted by interest income from repaid loans. The income from interest helps to pay for operating costs.
  1. Sales of merchandise and promotional items: KIVA sells goods and items for advertising, and the money it makes from these sales goes toward funding its operations. Additionally, these products promote and bolster support for KIVA’s mission.
  1. Interest on Reserves: KIVA invests the money in its reserve account, and this investment activity may result in interest income. The organization’s financial security is strengthened even further by this interest income.
  1. Collaborative Initiatives: KIVA may take part in collaborative initiatives with business partners that result in agreements to split profits or specific funding for initiatives that support KIVA’s mission.

Since its founding in 2005, Kiva has disbursed a total of $1.6 billion in microloans. 81% of the 3.9 million people who used the Kiva app to secure microloans did not have a traditional credit history. Lenders joining Kiva have helped a number of borrowers from agricultural sectors, military conflict conflict zones, and least developed nations.

If you want to start a peer to peer money lending business that enables people to lend money online to students and low-income business owners, consider creating a micro-lending platform similar to Kiva.com. The best platform to select in that case is iScripts SocialWallet. By using this platform, you can increase the quality and affordability of financial services, break down global barriers to financial access, and crowdfund loans for the underserved. Through this platform, families can afford urgently needed medical care, women can launch businesses, farmers can buy equipment, and students can pay for their tuition.

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