Kiva Brings Microlending Home To U.S. Entrepreneurs In Need

The financial crisis has made a lasting impact on small businesses around the world and here at home in the United States. With the credit crunch creating a virtual standstill of lending, small businesses in the U.S. are facing an uphill battle to find funds, especially if their financial history isn’t stellar., one of the web’s most interesting innovators in the micro-lending space, is hoping to come to the aid of U.S. entrepreneurs and small businesses by launching a pilot expansion that would allow individuals anywhere to make small loans to low-income U.S. entrepreneurs through Kiva’s platform.

Kiva is a peer-to-peer lending site that facilitates micropayment loans between citizen lenders and extremely low-income entrepreneurs in developing countries. Through Kiva’s platform, anyone can loan $25 or more to support an entrepreneur and the specific progress of the loan can be tracked from initial funding to repayment. Upon receiving repayment, lenders can withdraw their funds from Kiva or lend again to another entrepreneur, thereby continuing the lending cycle.

In April alone, Kiva members loaned $4.5 million to entrepreneurs, a 56 percent year-over-year increase and a record month for Kiva. Since the microfinance platform’s birth in 2005, over $75 million has been loaned through to support more than 180,000 individuals from 44 developing countries. Kiva’s president, Premal Shah, says this new initiative to include U.S. businesses increasingly made sense as the financial markets deteriorated and traditional lending began to dry up even in the U.S.

According to Kiva, small businesses represent more than 87 percent of all businesses in the United States, and, on average, these micro-enterprises are responsible for 900,000 new jobs created per year according to the Association for Enterprise Opportunity. This number seems small to me but the impact of small businesses on job creation is clear. To make matters worse, Kiva says more than 10 million business owners faced difficulty obtaining capital—even before the credit crisis and economic slowdown.

Kiva will launch today with the ability to for anyone to make loans to 45 small businesses and entrepreneurs seeking funding from the areas of New York, San Francisco, Boston, Atlanta and Miami. The businesses range in purpose and services, from salons to landscaping to day care facilities. For example, a Queens, NY-based entrepreneur delivers baked goods to bodegas in New York. He is looking to raise $6000 to fund insulation technology for his trucks.

Shah tells us that the idea was first introduced by California’s first lady and journalist, Maria Shriver, when she visited Kiva’s office last year. She asked if Kiva’s model could be replicated domestically to support low-income entrepreneurs in the United States. Shah said that initially he wasn’t sure if lending within the U.S. fit into Kiva’s model of international development. But following the recession, the organization realized the opportunity and need to provide community driven, low-cost capital for the everyday small business owner in the U.S.

Traditionally, Kiva uses partner microfinance programs, called a “Field Partners,” to evaluate whether businesses and entrepreneurs are eligible for Kiva’s platform. Field partners looks at a variety of factors in businesses, including past loan history, village or group reputation, and feasibility of business idea and then facilitates the loan transactions between Kiva and the microenterprise. In the US, Kiva will be partnering with ACCION USA, microfinance institution that lends to 48 states across the U.S., and Opportunity Fund, a community development financial institution based in San Jose, CA.

But P2P lending to U.S. businesses has proven to be controversial in the past. Prosper, a US peer-to-peer lender stopped all new lending on its site because of scrutiny by the SEC. Prosper, which is currently back online, agreed to register under the Securities Act, a process which took months. Since Prosper is a seller of investment, the organization had to be registered with the SEC, according to securities laws in the U.S. Loanio and Lending Club also faced similar problems in P2P lending initiatives.

Shah says that Kiva differs from P2P lending sites like with Kiva, you can’t earn a rate of return. The best you can do is get your money back at 0% interest – like lending to a friend. Shah maintains that a key factor for the SEC to determine is whether the organization is offering a ‘security’ — where there is an opportunity to earn a rate of return. Since Kiva’s loans to the working poor at 0% interest are clearly charitable in nature, Shah says that registration with the SEC is not required.

One of the compelling parts of the new program is the ability for lenders in other countries to lend entrepreneurs in the U.S., making Kiva the enabler of economic development throughout in both developed and underdeveloped countries. Kiva has also signed up celebs to take part in the new initiative. Apparently, actor Tom Hanks will be lending to a U.S micro business and investor Warren Buffet has been asked to contribute to the new project as well.