Micro-Finance and Kiva, a primer

Let’s say you live in Nicaragua and run a business from your home creating bricks for building houses. You want to buy a machine that will help you lay bricks faster but you don’t have the cash. You need a loan.

One day you make a journey to the nearest city to visit the local bank. The bank doesn’t want to give you a loan. Their minimum loan size is nearly $15,000! You only need $2,000 and can’t afford the monthly payments required to borrow more. Moreover, you don’t have the collateral needed to back the loan. You go back home empty handed and your business continues on as it always was, barely feeding your family of six.

Enter micro-finance and Kiva.

Micro-finance is a lot like regular finance, the kind you may have used to pay for school or buy a car, except at a scale much more accessible to the poor. Like our Nicaraguan brick layer, most impoverished people could greatly benefit from an affordable loan but are limited by an inflexible banking system. If more loans were available at more affordable rates, more people could use them to expand their small business and, ultimately, rise out of poverty.

Unfortunately, managing these small loans is expensive and risky. Not only is the interest earned on the micro-loans very small, but the people that need them most live in remote areas of countries with unstable governments.¹ Often, a loan officer has to mount his motorcycle and drive hours on rugged terrain to collect on a payment so small it might not even cover the cost of gas.² To survive, self-sustaining Micro-Finance Institutes, or MFIs, have to rely on innovations (like village banking or mobile payments) and alternate funding sources. Like Kiva.

The Internet’s first peer to peer lending website, kiva.org.

Founded in 2006 by Matt and Jessica Flannery, Kiva is the world’s first peer to peer lending service. The website kiva.org allows anybody with an Internet connection to browse a portfolio of entrepreneurs seeking micro-loans (say our Nicaraguan brick layer) and lend as little as $25 to their business. The novel idea has attracted a steady stream of press, including PBS Frontline, Time Magazine, and even Oprah.³

From a user’s perspective Kiva is deceptively simple. Make a loan and you will be regularly alerted when repayments are made to your account. It feels so automatic that it's easy to forget the complexity of the situation: these loans are being distributed in a foreign currency halfway around the world by someone who probably has a very limited idea of what the internet even is. Behind the scenes, Kiva has developed an innovative business model to ensure this loan cycle flows seemlessly.

Often before your loan ever gets funded, Kiva extends a zero percent interest line of credit to its 119 partner MFIs in 53 countries around the world. These partners use this money to manage the end relationship with the borrowers. In exchange for the nearly free funding, the MFI agrees to terms that are quite unusual for a normal bank. For one, they must follow up on ended loans to write an account of how the loan impacted the life of the entrepreneur and their family. These stories are posted to the original Kiva funders in lieu of interest.

As our brick layer in Nicaragua expands his business using your loan, he makes regular payments to his local MFI, who pays Kiva, who pays you through Kiva’s website. Through this cycle, the brick layer receives access to credit otherwise unavailable, you get your money back along with a few heart-warming stories, and the MFIs make enough profits to continue providing their service. Proponents argue that this model of loans, as opposed to donations, has proven very effective at bringing people out of subsistence poverty to become full contributors to their local economies.

A store owner in Costa Rica proudly shows off his well stocked shelves. (by Gabriel Francis).

Of course, things don’t always go as planned. On occasion, like a teenager with a new credit card, the already impoverished borrower enters into a cycle of debt that she is never able to escape. Critics are quick to point out these scenarios as evidence that micro-finance doesn’t work, and recent lucrative stock offerings by SKS and Compartamos⁴ leave some pointing fingers that micro-finance banks are profiting at the expense of the poor. Even some economists are beginning to question the micro-economic benefit of the model.⁵

While these critiques should be acknowledged, proponents can safely point out a slew of individual cases where lives have been changed, sustainable economies stimulated, and social impact verified. To combat criticism, proponents have begun to construct a new measure of impact, called social performance indicators. These new economic models attempt to establish a standardized, cross culture measure that supplements dollars for more delicate indicators, like improved health, child education, and access to food. While social performance measures are new and may take years to fully develop, the current quantitative measures aren’t too shabby.

Kiva claims a healthy loan repayment rate of over 98% by its borrowers, 82% of which are women. And Grameen Bank, considered the father of micro-finance banks, claims 68% of those who have used its micro-credit services have moved out of poverty.⁶

That, despite the critics, is a powerful figure.

Posted by Gabriel Francis, BRUTE Guest Blogger

As a Kiva Fellow, Gabriel Francis currently works with Kiva’s partners in southern Costa Rica to document the stories of micro-entrepreneurs and advance Kiva’s mission of connecting people through lending to alleviate poverty. You can follow his personal blog at www.gabrielfrancis.com and sponsor his adventures. Apply today to become a Kiva Fellow.

Gabriel with Matt Flannery (co-founder and CEO) and Premal Shah (President) of Kiva.

1. A popular way for new governments in Central America to win approval of voters in the past couple years is blanket forgiveness of all private and public loans. Called “no pago” movements. Great for the individual, potentially devastating for the economy.
2. For example, 8% simple interest on a loan of 10,000 yields $800. The same 8% on $1000 yields only $80. Less than it costs to fill a 4x4 vehicle to collect the loan at today’s oil prices. To be able to afford the costs, micro-credit organizations charge what might otherwise be considered usurious rates of 25% to, in some cases, upwards of 80%.
3. There resulting surge of traffic from the PBS Frontline episode crashed the website for nearly three days. After the Oprah episode Kiva “sells out” of loans for weeks. http://www.kivapedia.org/index.php/Kiva_Timeline#2006
4. http://www.nytimes.com/2008/04/05/business/worldbusiness/05micro.html
5. Source, quotes from Banker to the Poor by Mohammed Yunus
6. http://india.mit.edu/~varun_ag/readinggroup/images/9/90/Grameen.pdf

ProjectOPEN featured in Pasadena Museum of California Art exhibition

Last year, the BRUTE LABS team distributed 1,000 homeless services guides throughout Santa Monica with the help of a grant from UCLA. We called the effort projectOPEN and are working with other cities to develop similar guides. The guide includes a map of homeless services locations, public transportation routes, and laws affecting the homeless. We’re honored to announce that the Pasadena Museum of California Art (PMCA) has included projectOPEN in their California Design Biennial 2010: Action/Reaction from July 18 through October 31.

Photos of the exhibit. View full size image.

The PMCA exhibits California art, architecture, and design from 1850 to the present and this is their fourth biennial exhibition. The show features the most significant and innovative designs being created in California. The theme of this biennial is “Action/Reaction” and projectOPEN was selected because of its use of design to address a social challenge – homelessness. Other works were selected for their response to current economic, political, and environmental challenges. To learn more, read the full press release.

If you’re interested in seeing the exhibition in person, visit the PMCA between now and October 31. The museum’s hours are Wednesday through Sunday from 12:00pm to 5:00pm and the address is:

Pasadena Museum of California Art

490 East Union Street

Pasadena, CA 91101

Jason Shafton, BRUTE Core

Friends of BRUTE LABS: Rainmaker Properties

On July 31, a few members of the BRUTE LABS team (Danny, Dontae, and Jason) dropped by a BBQ at the Cupertino Community Center. The event was hosted by Alex Wang and Rainmaker Properties.

Rainmaker is a unique company. Through Alex's generosity, families that buy homes from Rainmaker have the opportunity to donate a portion of the realtor commission generated by their home purchase to local non-profits. BRUTE LABS is fortunate to be one of the organizations that Rainmaker's clients have the opportunity to support.

Rainmaker's mission is centered around "cultivating relationships one client at a time." This event was a testament to Alex's commitment to his clients and the communities that he serves. While taking in the summer sun, we ate good food, got to meet some really great people and mingled with representatives from other local non-profits.

We'd like to thank Alex and everyone at Rainmaker Properties for their generosity and support. To learn more about Rainmaker, check out their Facebook page.

Don't believe how much fun we had? Check out the video below:

Dontae Rayford, BRUTE Core

Using technology for good: A beginner’s guide

Three years ago, I had never written a single line of HTML. A year and a half ago, all I knew about Python was that it was a programming language. And several months ago, I didn’t have the foggiest idea how to use javascript. But the various websites I’ve helped build for BRUTE LABS incorporate all of these elements and more. And that’s one of my favorite things about the web: it’s just so darn accessible! Practically anyone can access it, and practically anyone has the tools to learn to create things on it.

A few years ago, I was working a job where I had a lot of free time. I would watch videos or read a book or shoot the breeze with other similarly under-employed friends. But that all got old pretty quickly so I gave myself a project of redesigning my boss’s website. I didn’t know much about web technologies at that point, so I started out by finding some websites that looked halfway decent. A pretty incredible thing about the Internet is that you can see the source code of pretty much any web page in your browser (usually with the keyboard shortcut Control+U). Think about that - it’s nuts! It’s like having access to the set of a movie you’re watching to see how a scene is created. Or having access to the schematics of the car you’re driving to learn how all the parts interact. Practically any page on the Internet is free for your careful dissection and re-use.

So I went to those nifty-looking sites I’d found, looked at the source code, and immediately saw a lot of nonsense that I didn’t understand. Naturally, I started searching the Internet for the things I didn’t understand. And lo and behold, another crazy thing about the Internet is how many wonderful tutorials people put together to help you learn things. Sites like W3Schools give you practically everything you need to learn about how to build websites, for free. And there are countless other unofficial pages, blogs, and videos that people have put together out of their passion for sharing knowledge. With these tools, I was able to learn all I needed to know about HTML and CSS, and built a not-too-embarrassingly-bad site for my boss.

Skip ahead a year or two and I was working at the same company as one of the BRUTE LABS cofounders, who told me about the Mchopa project which he had been planning for some time. He had the idea and the design but needed someone to make the site work - in other words, turn it from a static site to a dynamic site, a web application. I hadn’t done anything like that before, but volunteered to give it a shot. A few months later, with the help of many online tutorials and a lot of trial and error, we were ready to launch mchopa.com, written in Python using Google App Engine.

Every time I ran into a challenge I thought I wouldn’t be able to overcome, I was able to find somewhere online that gave me the answer, from online tutorials, to the Python library docs, to full source code examples - if you just look, you can find what you’re seeking.

Building the run! at Red Rock site was a similar experience with new obstacles - this was to be a site with a full log-in system, taking user input and providing customized pages based on each user’s data, for potentially hundreds of users. It was a scale problem I hadn’t had before, and I learned a lot just from solving all those problems. Once again, the Internet came to my rescue as I was able to find pretty much everything I needed in the online documentation. With a basic understanding of programming concepts, a few tutorials and some examples, we were able to produce a fairly robust web site that provided value to a large number of users in a safe, secure, and useful way.

Is there another subject area whose trade secrets are so not secret? For example, could you learn to be a particle physicist the same way? Would you be able to do anything productive with that knowledge, practically, at home? Would anyone hire you? That’s the amazing thing about the web. It enables practically anyone, with the time and interest, to learn to do useful things on it. And those abilities are highly marketable and valuable.

This quality of the web fits in nicely with BRUTE LABS’ mission to address global challenges using design and technology. One thing that technology does extremely well is scale - as important as design is, you need technology to be able to exponentially expand the impact of good design. And fortunately for us, learning to use technology is as easy as having a computer and the desire and initiative to seek the knowledge. BRUTE LABS depends on this, because we believe strongly in open source altruism - the idea that the good we can produce via one implementation of a technology solution is increased many times over if we make it easy for others to implement that solution in different contexts. So instead of designing a site for a specific artist (i.e. the Mchopa project) we want to design a platform that many artists can benefit from. The accessibility of the web and of web technologies enables us to do this and we hope to aggressively drive these types of open source altruistic projects in the years to come.

Danny Bowman, BRUTE Core

Evan Goes to Uganda: To Gulu and Back

After a four-hour drive filled with dodging potholes, speed bumps, and baboons, we finally made it to Gulu. Gulu is a city in Northern Uganda with quite a history. For those of you that aren't familiar with it I will give you a quick synopsis. Northern Uganda lived in fear from about 1989-2006 of the rebel group called the Lord’s Resistance Army (LRA). This force, led by Joseph Kony, would abduct young boys and girls from villages.The boys were forced to be child soldiers and the girls became wives of the officers. The economy of the North was ruined and families were torn apart. Now that the LRA has left Gulu and moved into southern Sudan, the community is trying to restore what the rebels shattered.

We went to Gulu to meet with a few of our partners. With one group we wanted to research the cases of trafficking that they have identified and document those cases on slaverymap.org. Unfortunately, things don’t always go as planned. Upon reaching Gulu, we found out the organization no longer wanted to partner with us. Although this was frustrating, it gave us opportunity to meet other organizations and make some important partnerships. We met two other organizations that were beneficial. A former child soldier started one of them. It was amazing and eye opening to hear his story. His group tries to help people who were greatly affected by the war integrate back into the community. The other organization helps torture victims in Gulu. We set up a partnership with them both that will help us to map more cases of trafficking in that area.

One of my favorite stops in Gulu was to Ocer Campion Jesuit College. This is one of the projects that Not For Sale is helping fund in Uganda. I was honestly in awe when we pulled up to the gate. I hadn’t seen any other construction in Uganda as well built as this place. I was so excited to be there. We met with Francis, one of the brothers that donated the land for the project, and Tim, the architect of the site. They gave us an overview of what is presently happening and the future of the facility. They also showed us the blueprints for the college. I could not believe my eyes! The part that was already built was a tiny square in the corner. The part that has already been built was on about 3 or 4 acres and the brothers had donated 98 acres to the college! They are even planning to have renewable energy like hydro-electric and solar power. I was very impressed.

This location was also the site of the future amphitheater being built for the Undugu family. Their goal is to bring the community together through music. We were able to see the children’s group practice their performance. Again, I was so impressed! Those kids give it their all, even for practice. I got to try to play a little bit too… I could play the beat, but couldn’t dance if my life depended on it.

One last group we were able to visit with was a church that focuses on interacting with prostitutes. It was heartbreaking to sit in their homes and hear their stories. They are all very similar stories, but each woman has faced different struggles. As a result of these conversations I have inherited an entirely different view on gender and why things are the way they are now. Every day I am faced with things that challenge my attitude, my mentality, my love for others, and my beliefs. I will come back from this trip changed.

-Evan McCormick, BRUTE Guest Blogger

Evan goes to Uganda: Anti-Human Trafficking Movement in Uganda

Wow! What a whirlwind this first week and a half has been! Luckily, I haven’t been on this journey by myself. Zoe, another Not For Sale representative that has gone through the Academy, is traveling and working with me. After a 36-hour flight process, stopping in Dubai and Ethiopia, we finally made it to Kampala, Uganda. Zoe and I met up with Brian, the Not For Sale Regional Director for this area, at the airport. Since then, Brian has been our guide, leader, and overall friend. The three of us have had a great time hanging out with each other. We are always joking, laughing, and best of all singing. Every once in a while, the three of us will break out in song, the most common artist being Michael Jackson.

So far, our work here has consisted of three main things—partnerships, mapping, and awareness. The first couple of days were spent developing some long- and short-term goals for NFS in Uganda. We realized that we needed to promote our new movement by partnering with other NGO’s. We are not going to be able to conquer human trafficking by ourselves. We specialize in awareness and we need other organizations to come along side us to make our efforts worthwhile.

Our first step in this process was doing some work in the slum areas to get a feel of what many people live like here. We wanted to see why people are often tempted to go with traffickers who offer them “great jobs” in Kamapla. We visited four ladies who were trying to raise families without a husband. One of them told us flat out she was a prostitute. We talked to them in their one-room houses on straw mats sitting on the floor. It was eye opening, disgusting, and heart breaking to listen to their stories. I pretty much just sat there, listened and felt no emotion until afterward because it was so hard for me to comprehend what they go through daily.

Not For Sale has already made some partnerships here, but we came and renewed those and created new ones. To do some mapping of slavery in Kampala, we met with Uganda Youth Development Link. They are an aftercare center for youth who have been involved in trafficking, violence, HIV/Aids, etc. We were able to read through many real cases and document them on slverymap.org. Mapping is one our main goals in Uganda. It is a vital tool in our awareness campaign as well as getting more legislation passed against human trafficking.

Early last week, Zoe, Brian, and I trained 8 volunteers from an NGO called Bridge Builders about what trafficking is, how it happens in this area, and why we wanted to partner with them. Bridge Builders focuses on getting street children back home and keeping kids in school. They helped us make appointments with two different schools. We taught about thirty, 8-14 year old kids at each of these schools what trafficking is, how it happens in their area, and how they can avoid it. These 30-minute sessions were very successful, mostly due to the review game that included candy. Their faces brighten up so much when they see the “sweets” bag come out. I feel that in each of those sessions, there were at least 3 or 4 kids that really understood and are going to go tell their friends and family about it.

Uganda has so much potential. I am so stoked to be a part of this revolution!

- Evan McCormick, BRUTE Guest Blogger

BRUTE Goes to Haiti

What's happened since the massive earthquake four months ago? What's it like living there? How're the rebuilding efforts going? What happened to all that money that we all donated via text message? These and many more questions were on our minds as I (Dru) and fellow BRUTES Josh and Justin decided to fly down to Haiti earlier this month to see it all with our own eyes.

Who can forget those images of destruction that were all over the web and TV? Like each of you, we had been deeply affected by what we saw and at a bit of a loss as to how to respond. Hundreds of billions of dollars had been raised, but we wanted to learn more about what's been done. We wanted to figure out how to take action as global citizens and part-time do-gooders. So we reached out to some of our friends.

Within a week, we were heading down to Haiti to visit a doctor friend who'd been working in Jacmeel for seven months. We flew out to Port-au-prince with a loose agenda to meet with her and various organizations who were on the ground trying to rebuild the torn island nation.

What we saw there was overwhelming. The streets looked as if they had been hit by bombs, buildings were left in shambles, trash and rubble were piled high all around. Driving around, we passed a multitude of tent cities, even in front of the leveled presidential palace.

Cameras and notebooks in hand, we eagerly spent our few days taking in the sights, smells and sounds. Along the way we met Haitians, tent city inhabitants, NGOs (ie. Architects for Humanity), and school officials. We even visited the places where the colorful Tap Taps (makeshift busses) are assembled and painted. Even not knowing a bit of Creole (and relying much on translators), we learned of the daily lives and struggles of a people that needed help in every way imaginable.

The situation in Haiti is complicated and difficult, but we're encouraged to see that there's some amazing people willing to think bigger and more creatively about rebuilding.

We're still processing our notes, photos and videos, and plan to share with you just a bit of what we saw, heard, and learned in our brief visit. We'll give you tastes of the culture, share stories, and of course photos and videos to give you a sense of what its like to be on the ground.

Stay tuned.