The Start of Something Big

It's been a very exciting couple of days. I'm not really sure where to start, so I'll go from the beginning.

As I'm sure anyone affluent enough to be reading this blog knows, we are living in a capitalistic society. "It takes money to make money," or so goes the saying. For example, in order to open a new business in America a budding entrepreneur would need to take out a small business loan at a bank in order to get started (unless he or she is incredibly lucky). Generally, these loans are in the tens or hundreds of thousands of dollars, so banks don't hand them out to just anybody.

In order to get his loan the entrepreneur would generally show up at a bank in a suit and tie and hope that his credit and ideas are both good enough to convince the loan manager to lend him the necessary startup capital. If he has a decent credit history and a viable business plan, then odds are he'd walk away with a loan for enough money to get him on his way. Once he starts making a profit, then he can pay back his loan and begin growing his business and creating wealth.

However, if he has a bad credit history (or worse, none at all) then it's unlikely any bank would take a risk on him. And without that initial seed money, our would-be entrepreneur is out of luck. For better or worse, one of the main determiners of success in this world is one's access to capital on credit.

In the developing world, the model is exactly the same. The only difference is a matter of scale. Instead of small business loans being in the $100,000 range, they can be as low as $100. In third world economies a hundred dollars is enough to buy a few fishing nets or a sewing machine, and that is enough to start a viable business.

The problem arises when a poor entrepreneur walks into a bank. With no credit record and no collateral, banks are simply not set up to deal with issuing loans to the impoverished. Poor people can't get loans, which means they can't start businesses, which means they're stuck in an endless loop of poverty.

This is where the concept of Microfinancing comes in. Over the past 20 years, a model of international aid has arisen to plug the holes in the banks that poor people fall through:

After having been through countries like Cambodia, I've seen the damage that can be done by too much welfare. For example, the Cambodian government has jailed Cambodians for defusing landmines because the government is afraid that if all the landmines are defused then they'll stop getting foreign aid.

That said, the idea of Microfinancing is a "teach a man to fish" solution, and over the past thirty years it's proven to be very successful:

Fiona and I had heard about this notion, and we started thinking about what we could do to help implement it. We came up with an idea for a website where we could directly link donors with entrepreneurs. We figured we could post a bit about the person who needed a small start-up loan, and then people could sign up to sponsor them with loans as small as, say, $25. Then over the course of the loan, the donor would be kept updated as to how the entrepreneur was doing. There would be a real connection there and it would be plainly evident how much difference even a small amount of money could make to somebody.

We spent about three days in a frenzy of planning and creative talks. The energy between us has been so high it's staggering.

Then we found out that a couple of people had exactly the same idea as us about a year ago, and their website came out of testing in mid-October. Kiva.org is the first organization to use the internet to bring the power of Microfinancing directly to the donor. Of course, there was a part of me that was disappointed that we didn't get there first, but I suppose I can get over that.

We immediately got in touch with the founders of Kiva, and found out that they're a young married couple (like us) in San Francisco. I offered to help in any way I can (I've been known to write a line of code or two), and I'm eagerly waiting to find out what I can do to help.

After making contact with Kiva, Fiona called Kiva's partner, Village Enterprise Fund to find out more about opportunities with them. Wouldn't you know it, the founder of VEF picked up the phone.

He was on his way out the door to catch a flight to Tanzania, but he was excited to hear about us. He gave us his email address, and after sending our resumes and such, we wound up talking to him this morning over the phone (we actually used Skype, but you get my point).

We spoke to him for about twenty minutes, and came away extremely excited. He said he's already thinking about a couple of different things we could do, and we're going to get in touch again when he gets back to the US on Nov. 20. We're tentatively planning to go to San Francisco in early February to meet with him, but we'll need to find out more over the next few months.

I'm really looking forward to the prospect of being able to employ all the knowledge I've acquired travelling and working over the past 10 years. Looking back I feel like the collective bunch of all my random experiences - from writing web-based software to teaching English classes in Thailand to getting fondled by a Buddhist monk in Southeast Asia - have all led up to this. I feel, for the first time in my life, that I am in a unique position to use a skill set that I alone possess in a way that could positively affect people all over the world.

For more information check out the following links:

• United Nations - The International Year of Microcredit 2005
• Kiva
• Village Enterprise Fund
• Wikipedia page on Microcredit

Posted by flow Frazao on November 10, 2005 at 11:11 PM in Kiva/VEF, Microfinancing | Permalink