How Good is Kiva for Microfinance Institutions?

17 December 2010 at 14:00 10 comments

Kiva field partner office in Cambodia

To carry out its mission of connecting people through lending to alleviate poverty, Kiva allows microfinance institutions (MFIs) to raise 0% interest capital on the Kiva website. MFIs use this capital to lend to entrepreneurs and collect (and keep) the interest on these loans. For MFIs, being able to raise interest-free capital is arguably the greatest benefit of joining Kiva. While this funding is interest-free, there is a still a cost associated with raising the capital. MFIs must expend resources to post loans, repayment figures, and journal updates on the Kiva website. Do these costs outweigh the benefits? Financially speaking, how good is Kiva for their field partner microfinance institutions? Let’s look at a real life example of a large Asian for-profit microfinance institution, considering only at the incremental benefits and costs associated with partnering up with Kiva (all figures in US Dollars).

Financial benefits for Asian for-profit field partner

According to the notes from the 2009 annual audited financial statements, this MFI had outstanding borrowings from Kiva of $459,205 at Dec 31/09 and $304,367 at Dec 31/08. That’s an average outstanding loan balance of $381,786. Also from the notes of the financial statements, the average cost of borrowing was 8.75%. By borrowing from Kiva, the MFI saved itself just over $33,400 in interest costs in 2009.

Incremental costs

From the Kiva partner page, the average loan size for this MFI was $476, which means that the MFI posted about 800 loans in 2009. That’s 800 borrower pictures taken, 800 loan profiles uploaded, and about 128 journals uploaded (unfortunately, this partner has a low journalling rate of 16%). Here’s where I’ll need to make a couple of assumptions: The first assumption is that three full-time staff (or the equivalent to, if the work is done by more than three people) are required to do all of the Kiva work. Let’s also assume that the full-time staff are paid salaries of $350 a month and that associated overhead costs (training, travel, depreciation of equipment, utilities) for the MFI are 50% of salaries. In total, that comes out to $6,300/year per person, or $18,900. Add in $800 for a typical Kiva incentive of $1/loan paid to the loan officers for the additional work that they do (take a digital picture, get a client waiver signed, interview the client for the borrower profile) and the total annual cost comes out to $19,600. This specific field partner issues most loans in USD, so foreign exchange risk is not a big issue. For field partners that issue significant amounts of non-US Dollar loans, the cost of taking on foreign exchange risk must also be considered. However, this risk is very difficult to quantify, and the majority of it can be postponed until the end of the Kiva-field partner relationship due to Kiva’s net billing system.

Net financial benefit

With savings of $33,400 and costs of $19,600, this MFI ended up with a net financial benefit of $13,800 for 2009. This is just a rough estimate, because of the many assumptions made. The financial benefit of Kiva to MFIs will vary with their cost of funding, cost of staff and overhead, and any extreme local currency depreciation that the MFI is not able to compensate for by posting more loans.

While MFIs “make money” from being on Kiva, it is not as if the shareholders of all MFIs on Kiva are getting rich off of Kiva funding. In fact, 80% of Kiva’s partners are not-for-profit/non-governmental organizations that do not have shareholders, and a lot of the MFIs on Kiva are not turning a profit, relying on donor funding to survive. Some MFIs, like the ones in Cambodia, are structured as for-profit companies only because they have to incorporate to carry out microfinance operations.

MFIs should benefit too!

I would have posited that MFIs that partnered up with Kiva receive a net financial benefit; otherwise, why would they have signed up for the partnership in the first place? Field partner MFIs play a vital role in the Kiva system, administering loans and reporting back to Kiva’s lenders on the status of the loans. By lending on Kiva, you not only support entrepreneurs around the world, but you also support the field partner MFIs, enabling them provide microfinance services where they are very much needed. In return, you get to connect with entrepreneurs around the world through reading their loan profiles and receiving journal updates. It’s a win-win situation.

Edwin Au-Yeung is a Kiva Fellow currently serving at Tanaoba Lais Manekat in Kupang, West Timor, Indonesia. He has also served as a roaming Kiva Fellow in Phnom Penh, Cambodia, and likes to run quick calculations in his head. Want to support the provision of microfinance services around the world? Make a loan on Kiva today!

Entry filed under: KF12 (Kiva Fellows 12th Class), KF13 (Kiva Fellows 13th Class). Tags: , , , , , , , , .

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  • […] This is where an organization like Kiva would provide a huge value proposition to Indian MFIs. Kiva provides the loans at 0% interest to the MFI, thereby saving them the cost of […]

  • 2. ayyanagoud  |  4 January 2011 at 01:34

    I am very impressed about he srvice of theKIVA. I like to be a part of the kiva as kiva fellow and investor as indivicudual. please send me the information how can I make use of kiva for my country and how h can I help pelple throughout the world d thrugh KIVA as a an individual. I am in India. very much interested in microfinance as an industry as well as a social growth tool. .please reply all the information..

  • 3. Lina  |  19 December 2010 at 23:21

    I believe that the Kiva relationship is good for the MFIs. I’d love to see an analysis of how this relationship benefits the borrowers.

    • 4. kivacharlie  |  20 December 2010 at 00:39

      Lina – Great question! This is something I have asked many times, and I truly believe Kiva is working hard to provide more transparency about. While it is difficult to quantify exactly how Kiva’s relationship benefit’s borrowers, keep your eyes peeled for upcoming changes to the way MFIs social information is posted on Kiva. Also, I wrote a blog a little bit ago talking about lower interest rates for Kiva financed loans (, a more directly correlated result of Kiva financing for the borrower. Hope this helps answer your question!

      Edwin – Very nice post. Good to see some real numbers, as I lender I really appreciate that kind of thing. I would however like to add some additional benefits to the MFI due to Kiva financing. First, they pass on default risk to Kiva lenders, which is more or less significant depending on the specific MFI. Also, cost of capital varies widely around the world, vastly changing the benefit to the MFI. For example, cost of capital here in Kyrgyzstan can be close to 20%. This coupled with loan portfolios for some MFIs that are double or triple the one outlined here and the benefits might be multiplied many times. Finally, there are intangible benefits to MFIs for signing up to Kiva (such as our free labor!); Kiva Fellows, CERISE social performance indicator analysis, additional credibility when applying for supplemental funds from other funders, etc.

    • 5. Edwin Au-Yeung  |  21 December 2010 at 18:16

      Lina, that is a great idea for another blog post. Other than some MFIs offering lower interest rates for Kiva loans, I have struggled to find the benefits of being on Kiva for borrowers.

      One indirect benefit for borrowers of being on Kiva is that the MFI gets more interest-free capital from Kiva, which increases the pool of capital available so the MFI can lend to more borrowers on an aggregate basis.

    • 6. Edwin Au-Yeung  |  21 December 2010 at 18:56

      Hi Charlie, good points all around.

      I hadn’t thought about the Kiva lenders taking on the default risk. For the MFI, that removes the credit risk, which is another important benefit because it “saves” them whatever amount they would have lost from loan defaults.

  • 7. Petra  |  18 December 2010 at 02:47

    You think that three persons are needed fulltime for the kiva loans? With a total of only 900-1000 posts on kiva per year, that seems a bit much. One could hope that one person would be able to prepare 20 posts a week, not?
    Selecting the entrepreneurs is a core business of an mfi, I wouldn’t count that time…

    • 8. Edwin Au-Yeung  |  21 December 2010 at 17:22

      Petra, that 3 persons is a conservative estimate – the actual human resources needed can vary. A lot of factors come into play here, including the Kiva system the MFI has (Kiva Coordinators doing ALL of the Kiva work vs just posting info collected by the loan officers) and the skill level of MFI employees with technology and with writing.

      There would be MFIs where your estimate is reasonable – I do think at some MFIs one person (or the full-time equivalent of) could potentially prepare 20 posts in one week

  • 9. Fight For Life | Voice In The Dark  |  17 December 2010 at 16:20

    […] allows microfinance institutions (MFIs) to raise 0% interest capital on the Kiva website. […]

    • 10. ayyanagoud  |  4 January 2011 at 01:39


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