Small-loan platform a way out of poverty
Ex-tech exec creates Kiva to aid poor entrepreneurs
Five-year-old Premal Shah was sitting in a cab during a family visit to India when he got his first inkling about how unequal the world could be.
“You see a kid your age knocking on the window, hungry, and they are on the outside and you are in the inside,” Shah, now 42, said on a recent afternoon. “I didn’t have the language for it, but I remember thinking, ‘Wow, this isn’t the suburbs in Minnesota.’ ”
Subsequent family trips to India would confirm it for the native Minnesotan: Yes, the world is unfair — but there are small ways to make it less so, he realized. As a 5-year-old, he would roll down the window and give the young beggar a few cents. Today, he runs a nonprofit that helps
people who would normally be rejected by banks to obtain small loans.
Shah, who is a nominee for the 2018 Visionary of the Year award sponsored by The Chronicle, left his well-paying job at PayPal in 2005 to create Kiva, a platform where people can lend money in $25 increments to impoverished entrepreneurs, from a seamstress in Africa to an undocumented immigrant who wants to open up a coffee shop in Oakland.
The idea seemed simple and noble, Shah said, enabling even the poorest of the poor to participate in the world economy. The problem? “We had tough traction early on,” he said. “Trust was the big issue. People never believed they were going to get repaid.”
But one year later, the momentum began. Muhammad Yunus, a Bangladeshi entrepreneur, won the Nobel Peace Prize in 2006 for his work in microfinance, the idea of giving small loans to people in need. After Yunus’ award put a spotlight on microfinance, Kiva’s website suddenly got so much traffic that it crashed.
The way Kiva works is simple: People browse through profiles of borrowers around the world and choose who to lend to. For example, an undocumented woman in Oakland is looking for $775 to grow her pocket bag business. And in the West African nation of Burkina Faso, a group of women is looking for $1,225 to buy rice, oil and seasonings for a restaurant business.
While microfinance has been hailed as a way to lift people out of poverty, the idea has also been embroiled in controversy. Critics have questioned whether it truly helps the poor, or just drives them further into debt with high interest rates. Yunus himself once blasted the “megaprofits” made on the backs of the poor by microcredit banks.
“The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared,” he wrote in a 2011 New York Times editorial.
However, Shah says that Kiva isn’t a bank — but instead a platform that runs off empathy. Loans on Kiva are made at a zero percent interest rate, leaving it up to the borrower to repay the lender.
Oakland Mayor Libby Schaaf, one of the committee members who nominated Shah for The Chronicle’s Visionary of the Year award, called Kiva “deliciously disruptive.” The winner of the award will receive a $25,000 grant that can be applied to the cause of his or her choice.
Schaff, who is on Kiva’s leadership council, said the nonprofit funded more than 200 loans in Oakland in 2017.
“These are the entrepreneurs that have been shut out of traditional lending, and shut out of the entrepreneurial dream of making their own business ... and we are turning that on its head,” Schaff said. “These loans are not about credit scores. They are about character.”
Shah likes to say that microcredit is just a way to reframe the traditional view of poverty. Instead of seeing the poor as people who were unlucky or who did something wrong, microcredit allows them to be viewed as entrepreneurs.
“There’s immense creativity and resourcefulness out there,” he said. And the more that work ethic is enabled, he said, the less unfair the world may become.
Premal Shah, founder of lending platform Kiva, discusses website changes with Lisa Hogen, chief development officer.