Insights about promoting financial inclusion from Ashoka Fellow and Kiva founder Matt Flannery

Matt Flannery, founder and CEO of Kiva and Ashoka Fellow, talks to Ashoka about how Kiva is promoting financial inclusion. Kiva connects people through lending to alleviate poverty by leveraging the Internet and a worldwide network of microfinance institutions. Matt also took part in AshokaU's online course on Entrepreneurship and Globalization as a guest lecturer about Defining Strategy and Mobilizing Resources. You can catch up with his teachings and insights by listening to this podcast of the session.

 Ashoka: How do you know if somebody is a social entrepreneur?

Flannery: A social entrepreneur is someone who works to uncover a need, and then find the means, big or small, to fill it. New technologies, like those utilized by Kiva, allow social entrepreneurs to come together with a common vision for connecting with and supporting the working poor, around the world.

Ashoka: How is financial inclusion a part of Kiva?

Flannery: Most of the world’s poor lack access to sustainable financial services, whether it is savings, credit or insurance. Microfinance was born from the belief that low-income individuals are capable of lifting themselves out of poverty if they are given access to financial services – all they need is the opportunity, and Kiva loans help provide this.

This belief embodies the ideals that Kiva is founded on: that people are generous by nature, and will help others if given the opportunity to do so in a transparent, accountable way; that the poor are highly motivated and can be very successful when given an opportunity; and that by connecting people, we can create relationships beyond financial transactions, and build a global community where we express support and encouragement of one another.

Ashoka: Where did you get the idea for Kiva, and what has it accomplished so far? 

Flannery: My initial interest in microfinance was inspired by a 2003 lecture given by Grameen Bank‘s Muhammad Yunus at Stanford Business School. During a visit to east Africa with my co-founder, we found that the lack of access to start-up capital was a common theme.

After returning from Africa, we began developing a plan for a microfinance project that would grow into Kiva, which means “unity” in Swahili. In April 2005, Kiva’s first seven loans were funded, totaling $3,500.

About a year later Kiva reached $1 million in loans, and to date we have facilitated more than $340 million in loans. From those first loans made by friends and family to the 800,000 people who have made loans since then, our goal has not changed: we want to offer people a way to support others in a transparent, accountable way.

Ashoka: What makes you optimistic that we can achieve financial inclusion?

Flannery: What is so exciting about this digital age is that in just a few generations, every person on the planet will have the option to be a part of a global digital village. The Internet gives us a chance to be our best selves, and to reach out to those we will never meet.

In seeing each other, and being involved in each other’s stories, we become a connected global community. People can share their own personal stories, in their own voice. We become a connected society through transparent interactions with others around the globe.

Ashoka: Can you explain the technologies behind this trend?

Flannery: Global trends around crowdfunding, mobile- and inter-connectivity are opening doors to greater financial inclusion for the working poor. Kiva is leveraging new technologies, such as mobile payments, to reach underserved populations.

Mobile penetration has reached 79 percent in the developing world, and as a result, mobile could become a key financial player.

Kiva Zip is a new pilot program that we are currently experimenting with, and is now running in Kenya and the San Francisco Bay Area. With Kiva Zip, we are looking to facilitate a direct flow of funds between lenders and borrowers, since flowing funds in this manner helps to reduce the cost of borrowed capital, typically seen through interest rates or fees.

In Kenya, approximately 12 million people are not served by banks or microfinance institutions. At the same time, cellphones have become incredibly important for making financial transactions.

Mpesa, the mobile transaction system in Kenya, has 14 million users and now processes more domestic transactions in Kenya than Western Union does globally. In the United States, 25.6 percent of households are underbanked.

Kiva Zip US could provide risk-tolerant, crowd-funded seed capital for a small business. There is tremendous need for this because there are few loans available for under $5,000.

Ashoka: What are the barriers that have to be overcome?

Flannery: Most of the world’s poor address their need for financial services through a variety of financial relationships, mostly informal. Formal financial institutions were not designed to help those who don’t already have financial assets – they were designed to help those who do.

Imagine trying to get a loan in the United States without any savings, an employer, or a credit report – it just wouldn’t happen. Any organization or person who wants to address the issue of financial access needs to be creative in overcoming those barriers for even the most remote people on the planet.

Ashoka: What advice do you have for aspiring innovators, particularly those working to overcome the barriers to financial inclusion?

Flannery: Fundamentally, the way to get things done is to do. A lot of innovators and change makers spend a lot of time researching and discussing their idea, but not enough time actually executing the vision.

Social change is a “learning by doing” journey. It’s important to get started and test your ideas quickly, and adjust accordingly.

Building relationships of trust with the many constituencies you have is key. One of the ways to do that is to not only be open about the successes, but also the challenges and the learnings. Transparency and open communication is an important part of trust building.

In my experience, I have learned that honesty creates strong bonds between the organization and its constituencies. Time after time, this lesson has been reinforced, and it is a lesson that affects many operational decisions within the organization, to this day.

Kiva, at its heart, is a community-building organization. That is true among the people who lend on Kiva, the borrowers who receive the loans, the partners we work with to disburse the loans, and the way the organization achieves its mission.

Ashoka: What is your vision for Kiva for the next five years?

Flannery: Kiva’s overarching goal is to connect people, through lending, to alleviate poverty. We have big dreams about making Kiva a global hub for alleviating poverty, and all of our efforts map back to this goal.

We’ve set three strategic goals that we believe are both ambitious and achievable within the next five years to help us in this effort: to facilitate $1 billion in loans over the Internet, to reach two million entrepreneurs around the world, and to realize our own organizational self-sufficiency in the process.