Smithsonian.com

• Innovators

I, Lender

Software engineer Matt Flannery pioneers Internet microloans to the world's poor

• By Amy Crawford
• Smithsonian magazine, October 2007

Matt Flannery, 30, co-founded the non-profit Kiva.org, a microlending site, in 2004. Kiva operates on a people-to-people model, allowing private individuals to make loans to borrowers seeking to establish small businesses in developing countries.

How does Kiva work?

Kiva connects individual lenders from the developed world to individual borrowers in the developing world. We work with local microfinance institutions that post the loan applications they get on the Internet. Kiva raises debt capital via the Internet from thousands of lenders in the United States and Europe. The partner institutions sort and administer loans, but our lenders actually fund them.

How did you get this idea?

My wife [Jessica, co-founder of Kiva] was consulting in microfinance in East Africa, and I went along on a trip with her. We had the idea together. I thought it would be interesting to give people the chance to participate as partners, not just donors, with [small] businesses in Africa. I've always been interested in ideas about poverty. I've been sponsoring children through my church my whole life. It was part of my upbringing. What we're doing now is an extension of that personal history.

Why loans rather than donations?

Lending to somebody sends the message that you're treating them as an equal, someone who can participate with you in a business relationship. It's a really dignified way to interact with people.

What challenges did you have to overcome as you were setting up Kiva?

We started Kiva without any funding, and whenever you do something like that, it's hard to prepare for growth. Without a lot of start-up capital, you have to bootstrap your way at every step. At one point, we were getting thousands of users, and we had a $20 Web-hosting plan on a shared server, so our Web site was crashing. We had to figure out in one weekend how to transfer the site from that commercial hosting plan.

How do you make sure the loans are not misused?

We're as transparent as possible. When you loan on the Web site, you get to choose whom you loan to—a goat-herding business, a retail business, a fruit stand. Most of the time, you hear back about what happened [through the Web site]. We allow the lenders to ask questions and the partners to report. This summer we sent about 30 volunteers—we call them Kiva fellows—to witness Kiva's impact firsthand, and they're writing about it on the Web site. Just about every minute, there's a new journal entry.

So far, Kiva has an excellent repayment record. How do you manage that?

Repayment rates in the microfinance industry are much higher than for U.S. domestic loan lending. That's because microfinance institutions are lending to people for whom getting a loan is their only shot at anything. If you're given a sixty-dollar loan, your chance of getting another loan is contingent on you paying that back.

You're also a lender on Kiva. Who are some of the people you've lent to personally?

I usually lend to Eastern Europeans—a food market in Azerbaijan, a clothing store in Ukraine. Most of my portfolio is people from Azerbaijan, Moldova, Tajikistan, Bulgaria, places like that, because they are the least popular borrowers on the site, and they often get overlooked by our lenders.

I hear your Iraqi borrowers are especially popular with Americans. How Come?

Curiosity. [People think,] "I can really send my money to someone in Iraq? I can really participate in a place that's so chaotic? I wonder what will happen? I wonder if it will work out? I want to follow this story." There are probably a lot of people who want to send another message to the Iraqis, that America's not all about invading their country, we're about building it up as well.

Find out more about Matt Flannery in our Last Word questionaire

A former editorial assistant at Smithsonian, Amy Crawford is a student at Columbia University's Graduate School of Journalism.

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