VV Show #41 - Premal Shah of Kiva
Premal Shah believes your last name doesn't need to be Gates or Rockefeller in order to make a real dent in global poverty. After leaving his job as a Principal Product Manager at PayPal, it has taken Premal less then a year to make good on Kiva's pledge that all it takes to become a micro lender is a credit card and access to a computer. Raising money "Howard Dean Style" from over 13,000 online lenders, Kiva has provided more than a million dollars in low-cost working capital to small-scale entrepreneurs in less developed countries from Bulgaria to Uganda. The site boasts high repayments rates and soon hopes to offer lenders interest. We talk to Premal about how working in Silicon Valley has shaped his approach to combating poverty, how he believes the market "bakes in psychic and emotional returns," and how the power of online communities can strengthen the world of micro credit.
Episode producer: Koshlan Mayer-Blackwell
1:35 The pitch: why micro-lend?
- "[Imagine] a woman in Kenya who has a small piece of land. If she had eighty dollars for an irrigation pump she could actually get more productivity out of the land and increase her income from maybe $120 to $1200 a year."
- "She can't go to a bank…she is asking for such a small amount of money that it is not really profitable for a bank to serve her. "
- "And [micro lending] is not a donation or a handout, because the repayment rates are 95 percent plus."
3:15 When PayPal was no big deal
- "I left management consulting in New York and came out to a small company called PayPal in Silicon Valley"
- "At the time it was very small and people, by and large, still thought it was a joke of a company ("what do you mean I am going to email money to friends?")"
4:10 When "the ship" gets too big, just get back to entrepreneurship.
- "What would the intersection of the things I know and love look like? PayPal, eBay, micro finance. What would it look like if they were all blended together? And that's where Kiva.org came into play."
8:44 Entrepreneur lesson
- "I think one big lesson in entrepreneurship is that you just have to get started. Get a product out there and see how the world reacts."
- "The biggest danger is spending a lot of time doing a lot of analysis and PowerPoint: lining up all the duck before you even get started."
10:00 Repayment: No Problem
- "The women actually monitor each other and the repayments, and if one of the women defaults on the loan, they will all be penalized by not being able to receive more loans in the future."
- "And this reputational collateral and peer monitoring helps keep the repayment rate at 95 percent plus, which is better than credit card portfolios in the U.S. "
10:55 "Howard Dean Style"
- "The average loan size is $73, so it is very Howard Dean style. What I think is interesting is that no one user contributes more than 1 or 2 percent of our total loans raised."
- "We believe in grassroots capitalism. How do we get the masses to participate in poverty alleviation, based on mutual dignity with the business that they have sponsored?"
- "…our goal is to sign up as many users as possible, getting them to donate 25 dollars at a time and learn that the working poor are actually good credit risks."
12:40 A Favorite Loan
- "Essentially we aggregate funds from across the internet…we pass 100 percent of the loaned funds to intermediary microfinance institutions that are out in the field (say in Kenya, Uganda, Honduras, Senegal)"
- "What is exciting about Kiva is that it makes the lives of entrepreneurs transparent."
- "A guy in Bulgaria who started a bike shop. He got a $500 loan to start, and to promote his bike shop he started these bike racing competitions."
15:30 Zero percent Interest Rate: that does not sound like a good business to be in?
- "So we are a non-profit and today we are offering zero percent, but what we would like to do is to let interest rates float on the website."
- "I think it would be exciting to let people earn a rate of return where they were financially indifferent between Kiva where they are changing somebody's life, and their bank account (on a risk adjusted basis). I think that is possible."
18:40 User-Generated Metrics
- "We think for the first time in history, we will actually be able, through the wisdom of the crowds, to rate each microfinance institutions and the transparency on the site."
- "We will actually be able to bake into the financial price the social value creation."
- "Through letting the community rate the Internet community rate each loan, just the way you can rate a video on
- YouTube or a photo on Flickr, we think we can create a quantitative metric on social value."
- "The lender can weigh the metric on social value as well as the financial return as well as the repayment likelihood and those three variable will help us to create a market where capital can get to the best lending institutions…"
19:35 Transparency is Key
- "If you can be transparent about how the money is being used, be it through MySpace-type profiles, it can motivate a lot of people to participate."
- "People want to change the world they just want to know that it is done effectively."
20:20 Can a picture tell a thousand lies?
- Greg: "In the book Blink, Malcolm Gladwell cited a story about why there were no women on the New York Philharmonic. People had all these theories that women didn't have the same hearing or weren’t wired just right. Then, unrelated they put screens between the performer and the people listening to the recitals, and all of a sudden, women started to get onto the Philharmonic …do you worry that photos will get to people's prejudices and not lead to as an efficient of a lending market if you focused the information on more hard numbers?"
- "And if they weigh not only financial return and social impact, but also emotional and psychic return, that should be baked into the price."
- "A Kenyan is ten times more likely to be funded then a Bulgarian. A Kenyan is 4.6 times more likely than a Cambodian."
- "I think that is just fine. The goal is to make it as transparent as possible and see where the capital shakes out."
- "Kiva understands that [corruption] is a fact of life, and our goal is to create as transparent of a platform as possible."
- "Creating an online platform where people an actually blog about [failures] to achieve a level of trust... that's critical."
- "Loans are an information exchange, as opposed to donations, meaning when you loan your money and you get your money back, you know that something has happened. You know that there is some progress being made that has allowed for that entrepreneur to repay."
- "The accountability on each dollar that is donated versus the accountability on each dollar lent. There are just two different stories there."
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Posted by: Aaron at November 28, 2006 3:19 PM
Greg, great interview! And excellent technical details, a very clean sound! A great interview for the holiday season, too. Keep up the good work. Frank Peters
Posted by: Frank Peters at December 3, 2006 3:36 PM
Great interview. I wonder if anyone has used this same idea for Venture Capital.
Posted by: Joe at December 11, 2006 6:29 PM
Guys, excellent interview! It's amazing how bright ideas in social enterpreneurship can make huge differences!
I've been following the lending process for Altin Boiadjiev on kiva.org and, in 24 hours he made 150 dolars (10% of what he need)
Premal Shah, i'm wondering why don't you extendend your "roots" to countries like Brazil (the northeast side, wich is very poor)?
Posted by: Luiz Pereda at December 21, 2006 6:57 AM
Its so good to see you helping those people in need.
May you be well and happy : )
Posted by: Karen New at December 25, 2006 2:25 AM
@Luiz Pereda: I think Kiva is actively recruiting MFI partners in countries that aren't covered, but it looks that due to their small marketing budget, they mainly rely on partners to come to them or volunteers to recommend partners. So if you know any... let them know-- see the Partner section on the Kiva website.
Posted by: Ramon Kolb at January 5, 2007 12:13 PM
Kiva is a truly fascinating and inspiring business. For what it's worth, I just blogged my experiences with it today
Posted by: Mike Cannon-Brookes at January 8, 2007 7:48 PM
Excellent interview... Premal, if you are listening - congratulations and I wish you all the best in your business venture. Very inspiring story and a extremely worthy cause
Posted by: Sandy Naidu at June 16, 2007 9:11 AM