Mar 12, 2013
When I started my fellowship in Managua I was advised by many people to find a trusted taxi driver. Although much of the crime in the city is non-violent, petty-theft and street crime is frequent – especially when getting from point A to point B.
So, I asked around, and after trying about 15 numbers without any luck I finally came across a driver by the name of Jesús. For the past four weeks Jesús has taken me to and from work, and it’s been a blast getting to know him. He always has a smile on his face, has a great sense of humor, and is a genuinely nice guy. I’ve been helping him with his English since he desires to learn, and he has also helped me quite a bit with some of the slang and pronunciations here in Nicaragua.
Jesús has been a taxi driver for six years and works seven days a week in order to make ends meet and provide for his daughter. His car is currently in need of a few different repairs, but he can’t afford the cost. He informed me that his number one priority is getting his suspension and alignment repaired, which was severely damaged by a large pothole on the always-adventurous streets of Managua.
My first reaction, of course, was to help him find a microfinance institution (MFI) that could provide a loan for the repairs. After all, he has a historically consistent income stream from his business that would enable him to repay a loan over time.
Unfortunately, none of the MFIs I put him in contact with were willing to offer him a loan. One experienced employee told me that lending in the transportation industry has historically been very risky in Nicaragua, so most MFIs won’t entertain loan requests for car repairs. Also, the older the car, the harder it generally is to get a loan, which makes sense from a risk perspective.
The urgent repair he needs will cost $100. Given his financial situation, expenses, and average daily earnings, we concluded he would be able to reasonably afford a payment of $20 a week.
I decided to loan him the money myself.
The terms are simple: $100 loan amount, 0% interest, and $20 weekly repayments for the next 5 weeks. The official disbursement date of the loan was this Monday and he has an appointment to get the car repaired this week.
His car has 198,000 miles and he hopes to sell the car next year while he can still get a decent amount of money for it. He is confident that he will be able to sell it for $2,500 if he gets all the necessary repairs completed. He then plans to use the money from the sale of the car for a down payment on a newer, more reliable car.
For Jesus, I see the loan as a first step in a series of events that will strengthen his job security - receiving the loan, getting the repairs, selling his car at a premium, using the cash to obtain new car, having improved reliability to mitigate the risk of being without a car/job. He also tells me that the newer car he wants will get better gas mileage and will help increase his income since having a more presentable car will attract a larger client base.
This is example of a situation where an opportunity to make an impactful loan to a solid borrower fell outside the reach of the microcredit system. Sure, transportation loans in Nicaragua are risky and shouldn’t be given in all cases, but it’s hard to argue that there simply aren’t any opportunities to successfully make a loan to taxi driver. I ultimately lent the money to Jesús because I built a relationship with him, did some due diligence, and trusted him.
I feel that my experience shares many foundational characteristics with what Kiva is doing with Kiva Zip. Because I think Kiva Zip is so amazing, I’d like to take the opportunity to provide a brief explanation for those who haven’t heard of it or are interested in learning more.
Kiva.org has had incredible success reaching over 995,000 borrowers around the world by leveraging the infrastructure of partner MFIs to administer loans. Kiva Zip is an innovation of Kiva that differentiates itself through the exploration of direct person-to-person microlending approaches.
Kiva Zip is presently in the alpha testing phase and currently functioning in the U.S. and Kenya primarily due to the fact that the infrastructure of mobile payment technology is already prevalent in those countries. Mobile payment technology is vital to being able to scale the Kiva Zip model due to the absence of the administrative functionality provided by partner institutions.
Another key component of the Kiva Zip model are Trustees. Trustees are individuals or organizations responsible for recommending potential borrowers by first ensuring they meet required criteria e.g. having a real social and economic need, being financially responsible, having a sound business plan, etc. In addition to doing up-front due diligence, trustees also maintain relationships with borrowers throughout the life of the loan by providing ongoing support to help them succeed. Support generally includes things like business coaching and help with managing finances, but can include a wide variety of things depending on the situation.
Kiva Zip has three principal aims:
1. Expand financial opportunities and access for borrowers who otherwise lack them. People in need of credit, like Jesús, who are unreached by traditional banks and MFIs are a target of the Kiva Zip model. In the U.S., for example, start-up businesses generally have a very difficult time obtaining credit, and Kiva Zip has the potential of providing much needed help to this market.
2. Reduce the cost of capital for borrowers who need it. Although Kiva.org provides their network of partners with 0% capital, the partners need to charge the borrowers interest in order to cover their administrative costs. In the current Kiva Zip alpha phase, borrowers are receiving loans at 0%.
3. Enhance the connectedness between lenders and borrowers. The organization is currently exploring and experimenting with new ways of making this happen. One example is the conversation feature on the website that allows lenders, borrowers, and trustees to interact directly with each other. Not only does this provide a forum for expressing support and communicating developments, it also presents a medium to foster other advantageous things such as networking and marketing.
As technology advances, new opportunities are arising to help tackle some of the world’s most challenging issues with new and more efficient approaches. These approaches will provide the ability to make a greater impact with fewer inputs. If we all challenge ourselves to maintain the vision of leveraging technology for good, there is no doubt in my mind that we can improve the lives of more people than we ever thought possible.
Interested in learning more about Kiva Zip? Click HERE to check out the website!
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