Tuesday, January 18, 2011

Kiva And My Outfit: Three Major Departure Points

Image representing Kiva as depicted in CrunchBaseImage via CrunchBaseI am a huge fan of Kiva. They went from raising $5 million five years ago to raising over $100 million last year and are projected to raise close to a billion dollars in five years. But that would still be a drop in the ocean. Global poverty is no small challenge.

There are more than 10,000 MFIs - microfinance institutions - in the world today. But global poverty is as big as ever. It looks like a virgin terrain to me. There is so much work to do.

My departure points with Kiva will help me tackle global poverty much better. I have three major departure points with Kiva and a few minor ones.

Kiva is a non profit. So what happens is the best engineers go work for companies like Google and Facebook and make their money and maybe plunk a few hundred dollars into Kiva. They are not bad people. But I'd rather they worked for me. And so I am going the for profit route. I want to be able to hire the best people.

Going For Profit

I have stopped calling my outfit a microfinance startup. It is first and foremost a tech startup. What I have is a FinTech startup, thank you Fred Wilson for the beautiful term. That is my second departure point, that my outfit is going to be very, very high tech. Flashing pictures of poor farmers is not my idea of high tech. I intend to introduce social gaming elements at this end and mobile phone banking elements at the other end. I am going to go super high tech.

My third departure point is that I am going to do the last mile myself. The last mile is the hardest, most complex part of the microfinance business. You can raise money from lenders. People will put in the 100 dollars. But lending that money out and managing that lending is hard. Like someone once said, if poverty were just lack of money, it would be easy, we would just throw money at the problem, but it does not work that way. Poverty is way more than lack of money. It is more complex than cancer.

Kiva absolutely refuses to get into the last mile. In a way that is smart. They don't have to deal with the hard part themselves.
Former President of Iraq, Saddam Hussein, make...Image via WikipediaAnd it has also allowed them to scale globally fast. They give money to existing MFIs. But the public image that Kiva has cultivated is that their lenders are giving money directly to those farmers through Kiva, and that is not true. At some level that is deceitful. Not only that, it has been possible for some shady MFIs to take Kiva's money and lend it out at criminal rates like 60% and Kiva does not even know when that happens. It is like Saddam Hussein's son once said, my father's left hand does not know what my father's right hand is doing.

There has been a lot of stink coming from India these past few months, and it has been to do with MFIs messing up the last mile. You can't fucking be messing up the last mile. The last mile is the most important mile in the microfinance business. If you fuck that up, the other miles don't really matter. Anyone can raise money $100 at a time. The real question is can you lend it out well? That is the question.

I want to do that last mile myself. I want to have an internal ceiling saying no one who borrows from me will have to pay more than 25% in interest. I want to grow globally like the fast food people. I want to use the franchise concept to tackle the last mile. So I am still relying on local entrepreneurs, but they will be using my brand name, and they will be operating within parameters I set. No matter which McDonald's you go to anywhere in the country, the burger is still the same. I want that kind of quality control.

These are the three major departure points that my FinTech startup has with Kiva. I am going to be emphasizing those as I work on the five slides that I will be presenting to Fred Wilson in a few short weeks.
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