Small-loan plat­form a way out of poverty

Ex-tech exec cre­ates Kiva to aid poor en­trepreneurs

San Francisco Chronicle - - BAY AREA - By Tr­isha Thadani

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.

Peter DaSilva / Spe­cial to The Chron­i­cle

Pre­mal Shah, founder of lend­ing plat­form Kiva, dis­cusses web­site changes with Lisa Ho­gen, chief de­vel­op­ment of­fi­cer.

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