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The benevolent middlemen

  • Story Highlights
  • Company formed by Stanford graduates takes new approach to microfinance
  • Kiya link those with small sums to lend with entrepreneurs in poorer nations
  • Lenders limited to $25 of investment per company
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By Peter Walker for CNN
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LONDON, England (CNN) -- Microfinance is one of the hottest topics in development, all the more so since Muhammad Yunus, the Bangladeshi pioneer of the practice, won the 2006 Nobel Peace Prize.

art.yunus.jpg

Microfinance poineer -- and Nobel laureate -- Muhammad Yunus.

Now, a new company inspired by a business school's teaching and staffed by many of its alumni has taken the process a step further by matching up those in the developing world wishing to borrow small sums for business with people in richer nations who have a small sum to lend.

Kiva, a web-based non-profit organization, was set up by Matt and Jessica Jackley Flannery, MBA alumni from the Stanford Graduate School of Business in 2001 and 2007 respectively.

The company's president, Premal Shah, says he first gained an interest in microfinance from a seminar with Stanford political science professor David Abernethy.

"I really got into it," says Shah. He returned to Ahmedabad in India, the city of his childhood, to work at a microfinance institution. "It created a lifelong love for this form of poverty alleviation."

Kiya's main difference is that rather than dividing up large sums of money from institutional lenders, it helps individuals lend small sums -- a maximum of $25 each -- to a business.

"If you have $10,000 to lend, you have many options," says Matt Flannery. "If you have $25 to lend, this is the only option."

After running for two years, Kiya attracts $1.5 million a month in loans and has lent $12.4 million to 18,000 entrepreneurs in 39 countries.

Lenders also have a special connection with the business they hand their money to, for one simple reason -- they choose them.

Kiva's web site features stories and photos of borrowers, as well as reports on their businesses and repayments. Loan terms range from four months to 18 months, and most lenders reinvest when their loan, on which they do not earn interest, is repaid

The organization collaborates with 67 microfinance institutions around the world that recommend the borrowers and administer the loans. Kiva posts companies' credit ratings based on repayment histories, audits and independent evaluations, and boasts a repayment rate of 99.67 percent.

Fact Box

FT MBA Rankings
1. Wharton, U.S.
2. Columbia, U.S.
3. Harvard, U.S.
4. Stanford GSB, U.S.
5. London Business School, UK
6. Chicago GSB, U.S.
7. Insead, France/Singapore
8. Stern, NYU, U.S.
9. Tuck, Dartmouth, U.S.
10. Yale, U.S.
Source: Financial Times 2007

The process is as straightforward as possible. Once you have picked a company to invest in, the $25 payment is processed via web payment company Pay Pal, eliminating the need to get out a check book or visit the bank.

Crucially, PayPal offers its services for free, something negotiated by Shah, who spent six years with the company before joining Kiva.

Entrepreneurs featured prominently on the site can see their loans obtained very quickly. On one recent night, Vaiolupe Saolotoga, a 21-year-old mother in Samoa who is expanding her business in hand-printed fabrics, had only $300 of the $800 she needed. Within hours, the balance of the loan was secured.

Matt Flannery says philanthropy of this kind can become addictive, especially as lenders know they will see their money again. "People feel good about that, it's there if they need it."

The business school which first inspired Kiya is also providing a steady stream of senior staff, among them microfinance partnerships manager Ben Elberger, chief technology officer Sam Mankiewicz and computer engineer Jon Kart.

Unlike the traditional MBA graduate, Flannery says, he and his colleagues are "not looking to make a lot of money, retire and give it away. We're looking to live our whole life in an integrated way. It's not a binary approach." E-mail to a friend E-mail to a friend

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