This online form of micro-lending provides business owners with a chance to borrow small amounts of money - something they're almost never able to do at a conventional bank. The idea is to match lenders and borrowers, using the Internet as a middleman. Kiva, in partnership with the city of L.A. and the Valley Economic Development Center, is establishing a local outpost. It makes sense, considering that L.A. is home to the largest small business community in the U.S. Detroit and New Orleans also have Kiva lending programs. I noticed on the Kiva website that micro-loans will be matched by the Diller-von Furstenberg Family Foundation (as in Barry Diller and his wife Diane von Furstenberg). From press release:
Kiva City LA aims to fill the lending gap for small businesses through crowdfunding $1,000 to $10,000 loans. Lenders can visit www.kiva.org/losangeles and browse small business owners' profiles and stories and choose those they want to support with a loan of $25 or more. Loans funded through Kiva have a 98% repayment rate, so the money you lend is likely to come back to you.
The micro-lending world can be confusing because there are both for-profit and non-profit organizations. Some background from USA Today:
The idea has existed for years but is receiving renewed attention now that social media, online networks and payment technologies increasingly strip away legal, psychological and logistical barriers for money solicitations. RocketHub, Kickstarter, PledgeMusic, Funding4Learning, ArtistShare, FundRazr and hundreds of other sites call on individuals to pool their money, by way of the Internet, and support others' artistic, educational and business efforts, as well as charities and disaster relief. Some sites, like Kiva, specialize in small loans. "The gradual success of many projects has validated this as a real option, a real way to make things," says Yancey Strickler, co-founder of Kickstarter. "The Internet is incredible for harnessing organizational power."
I wrote about micro-lending in the March issue of the American Prospect (no link):
The micro-lending concept, which originated more than three decades ago in Bangladesh with low-interest loans being offered to the rural poor, came to the United States in the 1990s, though not without controversy. Kiva.org, another well-regarded global lending organization, was condemned in some quarters for offering loans to U.S. entrepreneurs instead of focusing on poverty in Third World countries. The critics have a point; at times it's difficult to know whether a micro-lending organization is aimed at specific groups in need of help or an established businessperson in search of a few thousand dollars. No matter the borrower's background, loan terms include strict collateral requirements and hefty interest rates.