Premal Shah: Loans that Change Lives

Our mission is “to connect people through lending to alleviate poverty.” We still have a long way to go towards connecting each other and alleviating poverty. But we’ve been positively overwhelmed with the altruism we see every day on the website. This activity is the result of our model’s emphasis on personal connections and lending.

Connecting people creates empathy. Empathy creates generosity. In a world where so many people are disengaged with the problems we face, it’s essential that we “human-scale” the problem and create pathways for everyday people to help. As Mother Theresa once observed, “If I look at the masses, I will never act. If I look at the individual, I will.” Since global poverty can feel overwhelming, individual action can feel hopeless — leading to inertia. However, when you go to Kiva’s website, you’ll see photos and stories of real entrepreneurs who want to grow their business with the help of your $25 loan. Helping becomes personal and immediate, leading to action.

Second, the opportunity to lend money at 0 percent interest, versus simply donating, addresses other key inhibitors to altruism: sustainability and accountability. Sometimes, we feel that doing good won’t create sustainable change — for example, giving money to the homeless — so we hold back. Lending ensures that funds go towards market-based solutions that can scale without grants over time.

Third, when Kiva lenders get repaid, it creates a feedback loop around the success of the person they funded. Oftentimes when we donate, we don’t know if the project really worked. Loan repayments are bits of information that convey success or failure. Finally, lending creates a partnership relationship versus an unequal donor/beneficiary relationship. I think people appreciate being on a plane of mutual dignity.

I recognize that by living in the U.S. and getting access to college I was one of the winners of the birth lottery on the planet. I was born in India to parents who were able to emigrate to the U.S. They were able to provide their children with all the opportunities that a parent dreams of. I was 5 years old when I went back to India for the first time. Even at that age, I realized how a kid in my dad’s farming village would have very different opportunities than what I had. It wasn’t until I discovered microfinance and the fact that there’s market-based sustainable approaches to poverty alleviation that I figured out there’s something really positive that we can all do about this.

Microfinance, the provision of financial services so people can economically empower themselves, is just very appealing to me. It’s a bottom’s up way to improve lives. And crowdfunding microloans gives us all a chance to be a part of it.

It’s important to break up microfinance into different products. There’s savings, insurance, remittance, and finally, loans. Each has different roles in enabling low-income households to better manage capitalizing on opportunities or coping with crises. What we do is look for ways credit can be improved for the poor such that it creates better outcomes in terms of household income.

If credit is provided in a way that is not well adapted to the needs of the client, or without proper education, or without a clear productive purpose, I believe it can do more harm than good. If credit is done responsibly, however, I believe it can empower low-income households to create or sustain new income streams. It’s not a silver bullet in the fight against poverty, but it can be an important tool in the toolbox towards creating an empowered, healthy world.

Microfinance has immense potential for improving the lives of the poor. In the last 40 years, it has reached nearly 200 million people. But while the existing system strives to reach everyone, 2 billion people still can’t access formal financial services. Traditional banks and microfinance institutions are often unable or reluctant to offer flexible loan products to meet these people’s needs — mostly due to high costs and risk (for example, imagine the cost of reaching deeply rural farmers).

With thousands of lenders worldwide who don’t think like banks, Kiva is a powerful source of 0 percent interest, flexible, risk-tolerant capital. More and more, we’re directing this capital to social enterprises, NGOs and microfinance institutions that are going beyond classic microfinance to take on issues like education, clean energy, agriculture and others that are central to poverty alleviation and economic opportunity.

We’re hopeful that crowdsourced capital can relieve the cost constraints on new ideas and ultimately prove the actual risk and cost of reaching the underserved is much less than the perceived risk and cost.

We recently launched kiva.org/green to highlight ways you can lend $25 towards solutions that address poverty and the environment. For example, there’s a group in Uganda called Solar Sisters that brings solar-powered phone chargers and devices to people who are off the energy grid and so burn kerosene and dirty fuels. A solar lantern is very expensive for someone who earns $1 a day, but if they could finance it, they wouldn’t have to spend as much as 20 percent of their household income on these dirty fuels, and their children could read at night and get better educations. Solar Sisters trains women entrepreneurs in Uganda so that they can start a “business in a bag” and sell new solar technologies to the women in their communities living off the grid. This model has a double impact: It increases the incomes of the women entrepreneurs, and it assists their consumers in accessing clean technologies that can decrease household energy costs and improve the health of their family. Through Kiva you can finance these solar entrepreneurs and expand access to clean, green technologies.

I’m optimistic about the future. There’s a Time magazine article on millennials that called them the “me-me-me” generation. But a recent survey said that 84 percent of millennials believe that it is their duty to do social good [PDF]. And they want to feel and belong to something greater than themselves.

What we need to do is create easier ways for people to act on that impulse. What we want to do is show, “Look, there’s all these market-based approaches that are very helpful. They create sustainable change.” And if we do that, I think it allows people to express their fundamental natures of empathy and compassion.

The first $1 million raised on Kiva took 14 months. And now we raise $1 million every three days. It’s accelerating, this movement of people who want to do good through market-based approaches that are sustainable and bottom-up.