Search Results for: kiva Made to Stick

What if there was a way to trigger a $150 billion influx of new money into the social sector?

Recently, in my public speaking, I’ve been talking about and why Kiva is like a “gateway drug to social investing”. The fact is, most people are not sitting around wishing that they could make high impact social investments. When Kiva was formed, it was not designed in reaction to a large group of everyday people who were looking for a simple way to make small loans to impoverished people in the developed world. Instead, Kiva built a model that was incredibly compelling and hooked everyday donors into the world of microfinance, which until Kiva was a social investing practice reserved for institutional grantmakers.

How did Kiva do it?

Well one model of what makes ideas spread is outlined in the book Made to Stick, by Chip & Dan Heath. The model is called SUCCESs and it lays out six principals of what makes an idea “sticky”. It is amazing how perfectly Kiva, which is one of the “stickiest” ideas in social investing, follows the SUCCESs model.

Simple: Simplicity isn’t about doing little things. It is about focusing on a core message. Kiva offers the simple premise that you can lend money to aspiring entrepreneurs in impoverished countries and help them improve their lives.

Unexpected: To get attention, you need to do something unexpected. Kiva’s pitch is that you can lend (not give) your money, get it all back and still make the world a better place.

Concrete: While the Red Cross says that they “help prepare communities for emergencies and keep people safe every day”, the home page of Kiva asks you to make a $25 loan to a specific person with their photo and bio.

Credible: According to the SUCCESs model, credibility comes from “human-scale statistics and vivid details”. Kiva’s website is overflowing with information about all their historical loans so that a first time visitor can quickly see specific borrowers and lenders and reams of fully paid back loans.

Emotional: People care about people, not numbers. The Chip brothers argue that people care more about self-identity than self-interest. Again, the home page of Kiva features a constantly updating profile of Kiva lenders, with short bios and their answer to the question “I loan because…”. After a few minutes clicking around their website, potential lenders will run across an existing Kiva lender whom they identify with.

Stories: Kiva borrowers keep a journal that explains to the lender how they’ve used the loan and how things are going. A lender is first presented a story about the individual requesting the loan and then given story updates as the borrower deploys the loan.

Kiva isn’t a freak accident. It is a masterfully executed, “sticky” idea.

We tend to spend a lot of time talking about what sort of giving is effective. But there is another issue facing philanthropy. During the last 100 years, charitable giving has run at about 2% of gross domestic product. Making philanthropy and nonprofits more effective isn’t going to change that number. Making philanthropy and nonprofits “stickier” is the key. Bumping giving from 2% to 3% would trigger a $150 billion influx of money into the social sector. That’s real money. That’s the kind of number that is thrown around when wars are started, banks are bailed out, health care is reformed. What if that kind of number was channeled towards effective philanthropy? What if giving went to 4%?

If you care about effective philanthropy, then you need to care about making effective philanthropy “sticky.”

New York Times on Kiva Debate

A few weeks ago, we witnessed a debate about Kiva’s microfinance process and their transparency rev up after a series of blog posts discussed the issues and the newly potent philanthropy Twitterverse brought in readers from around the web.

Now the New York Times’ Stephanie Strom has published coverage of the debate:

Last month, David Roodman, a research fellow at the Center for Global Development, pressed a button on his laptop as his bus left the Lincoln Tunnel in Manhattan and started a debate that has people re-examining the country’s latest celebrated charity,

…“Little did I realize what that click would unleash,” he said in an interview, later adding that the post had attracted dozens of comments, more than 10,000 hits and thousands of Twitter postings.

…Now Kiva is the latest nonprofit group to have to overhaul its explanation of how it works. Where its home page once promised, “Kiva lets you lend to a specific entrepreneur, empowering them to lift themselves out of poverty,” it now simply states, after Mr. Roodman’s post: “Kiva connects people through lending to alleviate poverty.”

…The uproar has proven beneficial in an unexpected way. “If anything, it has drawn more people into the nuance and beauty of this model of microfinance,” said Mr. Shah, who joined Kiva from eBay. “It’s highly imperfect, but it’s like a 3 1/2-year-old child: it has a lot of potential.”

Click here to read the full story.

David Roodman’s Reaction to Kiva Changes

David Roodman, who started the whole Kiva debate with his post Kiva is Not Quite What it Seems, has posted his reaction to Kiva’s updating of their How Kiva Works page. Roodman ends his post with this:

The bottom line here is that Kiva has made a quick and long stride toward keeping Matt Flannery’s promise of more transparency. I think Flannery’s response to my criticism blended grace, humility, and quiet confidence. The world would be a much better place if all charities, all organizations for that matter, were as open and responsive to criticism as Kiva has been. I trust the Kiva folks will keep refining.

I couldn’t agree more.

Kiva Updates “How Kiva Works”

About an hour ago, Matt Flannery, CEO and co-founder of Kiva, tweeted the news that Kiva had officially updated the How Kiva Works section of their website. Impressive reaction time on Kiva’s part.

From the updated website:

1) It all starts with our Field Partners, which are microfinance institutions operating around the world. Our Field Partners approve and disburse a microloan to an entrepreneur in their community. They take a picture of the entrepreneur and write down the entrepreneur’s story.

2) The Field Partner uploads the entrepreneur’s profile to Kiva’s website. The profile, if it’s not in English, is translated by one of our hundreds of volunteer translators. After translation, the profile appears live on

3) Lenders like you browse the entrepreneurs’ profiles and choose someone to lend to, using PayPal or their credit cards.

4) Kiva provides the funds to our Field Partners by aggregating the loan funds from all contributing lenders. Most Field Partners then use the Kiva lender funds to backfill the loan they’ve already disbursed to the entrepreneur. Disbursals can happen up to 30 days before, or 30 days after a loan request is uploaded to the Kiva website.

5) Over time, the entrepreneur repays her loan. The Field Partner collects those repayments and lets Kiva know if a repayment was not made as scheduled. We give Field Partners the option to cover both currency losses and entrepreneur defaults.

To speed things up and to minimize the number and expense of wire transfers, Kiva works on a net billing system. This means that, for any given month, we subtract the amount of repayments that a Field Partner owes to Kiva lenders from the amount that a Field Partner fundraises for entrepreneurs on Kiva.

If the balance is positive, that means that the Field Partner has raised more than they need to repay, and we use those funds to credit your lender account with the repayments due to you. Tell me more

If the balance is negative, then the Field Partner has 30 days to send us a payment for the balance. As soon as we receive that payment, we use those funds to credit your lender account with the repayments due to you.

Repayment and other updates are posted on Kiva and emailed to lenders who wish to receive them.

6) When lenders get their money back, they can re-lend to another entrepreneur, donate their funds to Kiva (to cover operational expenses), or withdraw their funds to their PayPal accounts.

DonorsChoose vs Kiva

Most people in the Kiva debate have stated that the fact Kiva loans have already been funded prior to them appearing on the Kiva website is misleading, but that this pre-funding approach is better for the entrepreneurs that Kiva’s users are trying to help. However, it has also been pointed out by many that DonorsChoose, a website that let’s donors support projects in public schools, really does offer the opportunity for donors to directly fund a project.

Here’s a comment I just received from Mike Everett-Lane, former executive director of DonorsChoose Northeast:

The central issue, to me, isn’t that the pool of money is fungible (i.e., my donation goes into a large pool, out of which the partners are funded, out of which individual loans are made). Nor is the question of microphilanthropy vs. the need to fund overhead. The issue is that Kiva implies that the lender’s choice helps determine who gets a loan.

Kiva gives the impression that if lenders do not fund a project, that project will not happen. Right now there’s a project with $250 left to go, and it “expires” in 8 hours, 15 minutes. That gives me a sense of urgency. I might even give the whole amount. But if the loan has already been made, then the “expiration” isn’t true. There is no real choice.

I worked for a number of years at, and I can tell you that giving donors an actual choice is hard. Good projects will go unfunded. You have to return credits to donors who have partially funded a project that never happened, and convince them to reapply those funds to a new project, which itself might not be fully funded, etc. Tracking it all is no piece of cake, either. But if you don’t do all of this, you’re not being transparent, and you’re not giving your donors real choice.

I don’t believe that microphilanthropy (or microfinance, peer-to-peer giving, etc.) is a good solution for most problems. has an advantage, in that they are funding discrete classroom projects within public schools, but do not have to fund the infrastructure of the schools themselves. Most problems just couldn’t be solved in this way. (”I’d like to fund only the violas in the orchestra, please.”) But if you’re going to advertise yourself as giving choice to the donor, you’d better do it.

Tim Ogden on Kiva

Tim Ogden, the author of one of the posts critical of Kiva on his blog Philanthropy Action, offers this comment on my post about the debate around Kiva:

I’ve updated my post because a close reading of the Kiva documents suggests that even the revised money flow steps you have isn’t quite right. MFIs don’t repay Kiva unless the volume of new loans is less than the repayments. In other words Kiva uses a portion of new loans to credit the accounts of older loans. Again, there’s nothing fraudulent about this (it’s basic accounting) and it’s the right way to keep overhead costs down. But it’s just another place where the illusion of person-to-person connection doesn’t match up with reality.

You ask the right question about what to do about this. Ideally change comes from the donor-side. Either they agree that they like illusion and promise don’t to get angry with non-profits who create the illusion for them OR donors finally understand that illusions shouldn’t be necessary in the first place and everyone agrees to be more transparent and realistic.

To be honest I don’t hold out much hope of either happening.

So the battle is Kiva’s spin on their operations and whether or not it is misleading. But the war is the illusion of person-to-person giving. This is a big deal. Kiva is a super successful organization, yet as everyone in the debate seems to agree, the best way for them to operate does not fit donors’ preconceived notions about what is best. Therefore promoting the fact that they use the best process will almost certainly lead to less social impact.

I’m really not sure what to do about this. To me it speaks to the massive education/public relations push that our sector needs to achieve. This is why I’m involved in groups like the Alliance for Effective Social Investing and why since the beginning of my engagement with that group I have been focused on how the group can help change the public conversation about philanthropy rather than just how it can help people measure social impact.

The narrative of the social sector needs to undergo radical surgery. We need to give rise to a new narrative in which smart donors invest in high performing nonprofit organizations who are vested with the authority to make tough decisions about effectiveness. Today’s narrative of nonprofits as simply conduits for donors to give money through as a way to support individuals saps our sector of strength and leaves us with an anemic nonprofit ecosystem.

Is Kiva Misleading the Public?

Over the past two weeks, a debate has been simmering about the way in which Kiva (a microfinance organization) describes how they operate. It all started when David Roodman wrote a post on his Microfinance Open Book Blog titled “Kiva Is Not Quite What It Seems”. David is writing a book about microfinance and by live blogging his progress he is soliciting feedback. In the post, David wrote:

Kiva is the path-breaking, fast-growing person-to-person microlending site. It works this way: Kiva posts pictures and stories of people needing loans. You give your money to Kiva. Kiva sends it to a microlender. The lender makes the loan to a person you choose. He or she ordinarily repays. You get your money back with no interest. It’s like eBay for microcredit.

You knew that, right? Well guess what: you’re wrong, and so is Kiva’s diagram. Less that 5% of Kiva loans are disbursed after they are listed and funded on Kiva’s site. Just today, for example, Kiva listed a loan for Phong Mut in Cambodia and at this writing only $25 of the needed $800 has been raised. But you needn’t worry about whether Phong Mut will get the loan because it was disbursed last month. And if she defaults, you might not hear about it: the intermediating microlender MAXIMA might cover for her in order to keep its Kiva-listed repayment rate high.

In short, the person-to-person donor-to-borrower connections created by Kiva are partly fictional. I suspect that most Kiva users do not realize this. Yet Kiva prides itself on transparency.

In other words, Kiva tells lenders (users of the site) that the money flows like this:

  1. Lender picks entrepreneur to fund and gives the money to Kiva.
  2. Kiva transfers the money to a local microfinance institution (MFI).
  3. The MFI gives the money to the entrepreneur.
  4. The entrepreneur pays the loan back to the MFI.
  5. The MFI gives the money back to Kiva who returns it to the lenders account.

But in fact, the money flows like this:

  1. An MFI lends money to an entrepreneur.
  2. The MFI puts information about the loan on
  3. Kiva lenders (users) select a loan to have their money credited towards.
  4. If an MFI reports that a borrower is delinquent, Kiva calculates the amount to deduct from the lender’s accounts.

You can see the two versions displayed in graphics in a post on the GiveWell blog. Note that Kiva shows version one to lenders and version two to MFIs. However, due to the debate, Kiva has updated the version they show donors to more accurately reflect the process [update: GiveWell’s chart compares Kiva’s updated version, but still implies that it is misleading]. In fact, in a guest post on Roodman’s blog, Kiva CEO Matt Flannery offers an excellent response in which he acknowledges that much of what Roodman argues is true, promises to be more transparent and then gives the back story of how Kiva’s model has morphed from the direct lending process to the more efficient process of having MFIs make the loans before asking Kiva lenders for the money.

So here’s where it gets interesting for me. Roodman argues that while Kiva is misleading donors, the process they are using is good:

I hasten to temper this criticism. What Kiva does behind the scenes is what it should do. Imagine if Kiva actually worked the way people think it does. Phong Mut approaches a MAXIMA loan officer and clears all the approval hurdles, making the case that she has a good plan for the loan, has good references, etc. The MAXIMA officer says, “I think you deserve a loan, and MAXIMA has the capital to make it. But instead of giving you one, I’m going to take your picture, write down your story, get it translated and posted on an American web site, and then we’ll see over the next month whether the Americans think you should get a loan. Check back with me from time to time.” That would be inefficient, which is to say, immorally wasteful of charitable dollars. And it would be demeaning for Phong Mut. So instead MAXIMA took her picture and story, gave her the loan, and then uploaded the information to Kiva. MAXIMA will lend the money it gets from Kiva to someone else, who may never appear on

Tim Ogden, writing on Philanthropy Action, offers additional criticism of Kiva’s communications, but agrees with Roodman on the idea that Kiva’s practice makes sense:

In Kiva’s defense, this subtle misleading is not unique to Kiva; most NGO’s operate this way especially in disaster relief, child sponsorship, and alternative gifts (like giving a cow or a goat). The reason it’s so prevalent is that the donors demand it—and they vote with their dollars if the NGO is unwilling to provide the illusion of a person-to-person connection. Kudos to Roodman for exposing the illusion in a comprehensive and thoughtful way. While I think trafficking in such illusions is wrong, I understand why they are perpetrated in the name of the “greater good.“ I wish Kiva and others would abandon this practice, but I also acknowledge that they can’t until donors stop requiring NGOs to mislead them.

So here’s the take away. Donors like to believe that they are helping other individuals. They want their money to go directly to benefitting the people they seek to help. We see this in the Kiva model, in the child sponsorship concept and even in the way that donors want nonprofits to spend nothing on overhead.

Taken together, it seems that donors simply see nonprofits as bureaucratic intermediaries who play a necessary role of linking the donor to the recipient, but who otherwise should get out of the way. Nonprofits, recognizing the way donors think, play into the illusion by reallocating overhead expenses to program costs and then trumpeting their low expense ratio or subtly reframing how money flows as Kiva has been doing to make their process better align with the donor’s illusion.

I’m really not sure what to make of all this. On the one hand, you can’t fault nonprofits for spinning what they do to best satisfy donors. This is exactly what for-profit companies do. Satisfying your customer or donor is the job of an organization. But at the same time, this illusion that donors want to believe in, that they can support individuals rather than nonprofits, is poisonous because it creates an atmosphere where the best nonprofits are the ones who can best stay out of the way rather than the ones who can create the most robust organizations.

According to Roodman, Kiva’s actual process is better at helping poverty stricken entrepreneurs than the illusion of direct lending that Kiva spins for its donors. But would you as a donor rather make direct loans? What should we think about the fact that what we want as donors is not what is best for the recipient? Especially when we tell ourselves that we want to take direct action because we think doing so is the best way to help the recipient?

Philanthropy 2.0: A Video Q&A with DonorsChoose, Facebook Causes, Kiva, The Motley Fool, and The Case Foundation

(This is a guest post from Peter Deitz, Founder of Social Actions, who is covering the Council on Foundations Conference for Tactical Philanthropy)

By Peter Deitz

For micro-philanthropy groupies, including me, yesterday’s session on Philanthropy 2.0 at the Council on Foundation’s annual conference featured a star studded panel. The founders of DonorsChoose, Facebook Causes, and The Motley Fool were joined by the East Coast Development Manager of and the Director of Social Investment for The Case Foundation. Quite a crew!

Roughly one hundred and fifty people attended the session, choosing Philanthropy 2.0 over a host of other really awesome sessions. Session facilitator Sharna Goldseker, Vice President of the Andrea and Charles Bronfman Philanthropies, took a quick survey of the audience. The attendees consisted of 30% family foundations, 40% community foundations, 5% corporate foundations, 10% private foundations, and 15% foundation consultants and advisors.

For the first hour of the session, the presenters showcased what they have been doing with web 2.0 and philanthropy. For those who aren’t familiar with the platforms listed above: – A donation site that connects teachers who need supplies for classroom projects with citizen philanthropists interested in funding the projects. (67,400 donors, $1.2 million donated since 2000)

Facebook Causes – A popular application on Facebook that permits anyone to start a fundraiser on behalf of a registered 501c3 organization. (12 million users, $2.5 million raised since 2007) – A community of advocates of micro-finance that permits individuals to make loans to small business owners in the developing world. (270,000 lenders, $28 million lent since 2004)

The Motley Fool – A web 2.0 financial investment community that also runs an annual program in which investors make donations to a select list of charities.

The Case Foundation – A family foundation started by AOL founder Steve Case that has invested heavily in the tools that make micro-philanthropy possible and has run several contests that encourage individuals to become citizen philanthropists.

After the presentations, the conversation gave way to a Q&A session, in which foundation representatives asked the panel about how philanthropy 2.0 could impact their own work.

Here is a video of the Philanthropy 2.0 Q&A:

Fortune Magazine on Kiva

If you read one article about philanthropy this month, make it “The only nonprofit that matters” in the new issue of Fortune. Click here to access. It is an excellent review of and other organizations of this type. I found a couple things interesting:

  1. Fortune refers to DonorsChoose as a “peer” of Kiva’s. When I suggested that DonorsChoose, Global Giving and others were competitors, Kiva denied this comparison. I think they are all more similar than different. Global Giving later wrote on their blog that they agreed with my take.
  2. The article notes that DonorsChoose users can elect to send a portion of their gift to DonorsChoose to cover overhead rather than have 100% go to the project. They say 90% of users choose this option. When I suggested that Kiva use a similar pricing mechanism to fix their current supply/demand imbalance, Flannery said (scroll to bottom) that the 100% going to the project was a critical part of Kiva’s value proposition.
  3. Kiva has been criticized for not being “real philanthropy”, because users make loans not gifts. I think Kiva is so important because they’ve figured out how to give users both hard data (default rates on loans) and soft data (info directly from the borrower to the lender on how they’re doing. In the article Flannery says, “We think the users want information more than they want their money back.”

In case anyone is new to this discussion, I want to make it clear that I think Kiva is doing great work. I make the above points because I think that the philanthropy community should care deeply about Kiva’s decisions because I think they are creating a model that will find huge success.

You can read my prior thoughts on this issue here.

A Kiva User Responds

Danielle Hamilton, A Kiva user who has been commenting on their “sold out” status recently left the following comment:

For the long term, I hope they expedite their research process,
streamlining their review system, allowing more researchers to be
available, thereby increasing the amount of borrowers. This seems to be
the hold-up, so to speak.

As for the ‘exclusivity’ of the service, I could care less for the
cool factor, whether Bill Clinton has mentioned it, or that it was
featured on Oprah. I do care that they have an excellent review
process, amazing repayment stats, excellent collection rates, and
regularly updated business bios to let me know the status of the loan
and repayment schedule. I receive regular e-mails updating me on the
repayments, which prompts me to browse the site again, finding other
businesses that need help.

It’s frustrating to see other blogs & newspapers compare Kiva to
GlobalGiving or other donation sites, trying to capitalize on Kiva’s
success in the MicroFinance realm. These are completely different! I’m
not giving a donation through Kiva. It’s a loan that will be repaid,
and I can plug my $25 back into another business. It’s comparable to
the Grameen Bank, on a smaller scale. If I wanted to give a donation, I
could do that with thousands of other websites and nonprofits,
including the 2,000+ nonprofits that I currently work with. (Note:
There ARE currently 5 opportunities for MF through GlovalGiving, but it
is obviously NOT their main focus.)


In a separate comment she writes:

I feel that I’ve had more contact about my loan through Kiva than I’ve
had from dozens of nonprofits that I’ve supported over the years.

I think that’s a telling comment as to why Kiva has been so successful. In a world where donors get limited feedback on the impact their are having, it is thrilling to hear real feedback from the borrower.

Danielle also complains about comparing Kiva to Global Giving (I had suggested that Kiva could refer donor/lenders to other “social exchanges”). Clearly lending is different from charitable giving. Yet in the financial markets debt investments (bonds) do compete for investor dollars with equity investments (stocks). My point is that as we see more social exchanges developed, they may want to broker agreements to send donors to each other when they can’t execute a transaction (a similar concept is already in place with stock