& The Social Capital Markets II

The New York Times recently reported on the fact that has too much money from donors/investors and not enough people to give/lend the money to:

Over the last few months, some visitors to the Web site of Kiva, a nonprofit that lets users make interest-free “microloans” to entrepreneurs in low-development (that is, poor) countries all over the world, were greeted with a surprising message. “Thanks Kiva Lenders!” it began. “You’ve funded EVERY business on the site!!” Has a charity ever announced that it had enough money? Would-be lenders were dumbstruck, says Kiva’s public-relations director, Fiona Ramsey: “They’re stunned for a second — ‘Here I am, I have money, I want to help someone, and you’re telling me that I can’t?’ ” The note encouraged the visitor to check back soon, as a new batch of loan-seeking entrepreneurs will often appear mere minutes later. But still, Kiva is a philanthropic organization facing an extremely unusual challenge: maintaining adequate supply (people who need help) to meet demand (people who want to give it). “We don’t want people coming to the Web site who want to make a loan and there’s no one to loan to,” Ramsey says.

On Saturday, the newest edition of my column in the Financial Times comes out and in it, I feature,, and as examples of “websites have sprung up that seek to match donors with nonprofits and projects that match their unique outlook.” These sites are examples of the growing social capital market that I believe will make it easier for donor/investors to find projects to fund and projects to find funders.

I’m intrigued by the implications of Kiva’s problem (and yes, getting too much money is a problem for a nonprofit, especially if they are unable to put the money to an effective use). For instance:

  • Kiva and the other sites I mention above have different missions. But would Kiva’s mission be better served by refusing donor money or by pointing donors to these other sites?
  • Is Kiva’s mission better served by treating these other sites as competitors and not referring donors to them with the premise that Kiva can best further their own mission and therefore should hope the donors will come back later if they do not give the money first to another site?
  • In the financial markets, there are rules that if a particular exchange is unable to execute an order, they must route that order to a competing exchange immediately. Does Kiva have a similar obligation to “re-route” their clients order to another “exchange”?
  • While Kiva is different from most nonprofits, it is still striking to hear about a nonprofit organization turning donors away. Does this problem stem from Kiva’s failure to identify “demand” (people to lend the money to) or from Kiva’s success at attracting “supply” (the lenders)? If the issue is on the demand side, does this suggest that microfinance cannot address as large as a market as proponents believe? If the problem is on the supply side, does this mean that we can expect Americans to provide much higher levels of support to the social capital markets if we can find more effective ways to engage them (as Kiva has)?
  • Rather than turning people away, Kiva could change the terms of their loans so that rather than getting full payback (Kiva loans do not carry interest), only 90% of the loan is paid back. This would then make the excess supply a benefit to the borrowers. Weaker terms for the lender would drive some lenders away and bring the market back into balance through reducing supply rather than increasing demand. Is this a better idea than refusing new money? If so, better for who?


  1. Sean:

    This is an interesting analysis and you raise some important questions here.

    I invite you and your readers to raise some of these questions directly with Kiva co-founder Matt Flannery, who will be taking questions on Tuesday, Feb. 5 at noon Eastern time as part of a live discussion sponsored by the Chronicle of Philanthropy.

    You can find out more at


  2. Reza says:

    Dear Friend,
    A group of researchers at University of Nevada, Las Vegas, are investigating effects of Weblogs on “Social Capital”. Therefore, they have designed an online survey. By participating in this survey you will help researches in “Management Information Systems” and “Sociology”. You must be at least 18 years old to participate in this survey. It will take 5 to 12 minutes of your time.
    Your participation is greatly appreciated. You will find the survey at the following link.
    This group has already done another study on Weblogs effects on “Social Interactions” and “Trust”. To obtain a copy of the previous study brief report of findings you can email Reza Vaezi at

  3. Fiona Ramsey says:


    It’s exciting for me, as Public Relations Director, to read your comments about one of the most intriguing parts of Kiva’s model. I agree with your comment that “Kiva?s problems are a great example of how strongly donors respond when social capital markets are created” – which is an exciting indication of how far lenders/investors will take this!

    A couple points of clarification: does not consider or to be competitors. While these models are similar in that individuals can choose the specific project they would like to contribute to, they are donations, not loans, and Kiva only facilitates loans at this time.

    One element of the Kiva model that is often under appreciated is that the platform operates 24/7, so a “shortage” that exists at one time, may not exist a matter of hours later. Kiva’s Field Partners update loans for funding from the developing world as they are received, they are translated and submitted to the live site as quickly as possible. So, we can literally have a site with no funding needs one minute, and thousands of dollars with of funding needed minutes later. This is the beauty of the Kiva platform – needs being delivered from the developing world. Real-time, real people and real needs.

    Of course the flip side is that a potential lender can come to the site and not find any lending opportunities at that time. However, that’s what makes the site so “addictive” for many lenders. Because you don’t know what needs will be listed an hour later, and find yourself checking back hours later to get an update.

    One additional comment: there is not a shortage of people in need of a loan. What there is, is a bottle-neck. undertakes a significant due diligence before partnering with any microfinance institution, and it takes time to both satisfy’s due diligence and train MFI staff on the Kiva system. As such, the partner portfolio is not growing at the rate of our lender community. The other solution to building our partner portfolio is to increase the amount of funding each partner can raise (each partner has a monthly fundraising limit), but that simply wouldn’t be responsible. is committed to creating an online microlending platform that helps MFIs to scale only at a rate that is healthy for both the MFI and

    On a personal note, watching these “shortages” occur excites me because it sends a strong message to our Field Partners, that Kiva Lenders believe in their work and wish to support their programs, and to developing world entrepreneurs, that Kiva Lenders are supporting them from over 70 countries in the world, and want to give them a chance to be successful entrepreneurs.
    As you said, Sean, this is a “great example of how strongly donors respond when social capital markets are created.”

    Fiona Ramsey
    Public Relations Director

  4. is a great model for our Youth Investors in that it shows them third world entrepreneurs who with just a small helping hand, pulling themselves out of poverty in the form of a loan and not a donation.
    Searight Investments, Education, & Entertainment For Youth And Families
    A & P Searight Investment Group For Kids

  5. That’s an interesting point Tony. I’d never thought of Kiva as an educational tool for young people. But it could be a good tool for that.

  6. Gabe Roberts says:

    Congratulations to for having the principles to refuse money when they had not identified suitable funding opportunities. I take issue with some similar organizations for not doing this; take as an example. $3.9M in revenue but only $1.6M was passed through to the grass root organizations and they show $511K in program expenses for tools, analysis, and evaluation of the projects before disseminating the $1.6M? After giving out the $1.6M and paying overhead, they still show a profit of $1.2M which was then loaned to a for-profit sister company (Many Futures Inc) which shares key executives with the nonprofit? They are sitting on $4.4M in reserves, all of which appears to have been loaned to Many Futures Inc … why not just give the money to the grass root organizations? Why does a nonprofit loan money to a for-profit?

    I’m no financial expert but something appears puzzling at

    Here’s their 990 from last year; tell me if I’m wrong: