Marketing is a controversial topic. To the outside world, you want to represent your best possible self. We do it all the time, in our professional as well as in our personal incarnations. More often than not, though, we are not telling the whole truth; our representation of what we are marketing is colored in a certain way. Oh, the difference between perception and reality!
This sad truth befell the social enterprise superstar, Kiva, this fall. Upon careful inspection, it was confirmed that Kiva was not representing itself in a true light. Kiva promoted itself as a link between small individual lenders and small individual borrowers. But David Roodman, of the Center for Global Development, exposed that lenders were not actually making direct loans. The borrowers already had loans from microfinance institutions by the time their pictures were posted on Kiva’s website. Thus, the direct person-to person connection that Kiva offered was an illusion.
When this happens, though, it really matters how you clean up the mess you have created. And Kiva did it with the utmost dignity. Kiva may have erred in its self-representation, but at the end of the day, they handled the criticism admirably. They have changed their communication to improve clarity for donors and have taken a proactive approach to rebuild trust with lenders. Overall, this has been an important learning experience, about trust and about life.
But, looking forward, what will 2010 bring in terms of transparency of marketing for social enterprises? Will we see more social enterprises crash and rise stronger than ever? Or will they crash and burn, fading from our memory?
For this issue’s installment of Juxtapose, we thought it timely and pertinent to highlight exactly how transparent Kiva has become, and to compare it to a new social enterprise star working with a similar model, Vittana. Obviously, there is much to learn here – the old master (ok, Kiva is only four years old) leading the young neophyte.
Kiva’s mission is to connect people through lending for the sake of alleviating poverty. In order to fulfill this mission, Kiva created the world’s first person-to-person micro-lending website, empowering individuals to lend to micro-entrepreneurs around the globe. While always having provided a data-rich lending platform, it is now extremely transparent as well.
The Kiva process is as follows: first, Kiva partners with microfinance institutions all over the world that disburse a microloan to an entrepreneur. Second, the entrepreneur’s profile is uploaded to the Kiva website. Third, lenders – like you and me – choose an entrepreneur to whom to lend. Fourth, Kiva aggregates the loan funds from all contributing lenders and disperses them to the microfinance institution field partners, ensuring that the faces on the Kiva website indeed do receive the loan they require. Most field partners then use the Kiva lender funds to backfill the loan they’ve already disbursed to the entrepreneur. Fifth, over time, the entrepreneur repays her loan.
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, Kiva subtracts 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 Kiva uses those funds to credit the lender’s account with the repayments due. If the balance is negative, then the field partner has 30 days to send Kiva a payment for the balance. As soon as Kiva receives that payment, Kiva uses those funds to credit the lender’s account with the repayments due. Finally, 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.
The concept of lending to a real person is an admirable one – yes, at the end of the day, the people on Kiva actually get the money. Helping an individual make great strides towards economic independence and improve life for themselves, their family, and their community is a noble act, indeed.
Vittana, the newest-of-the-new online lending platforms, “makes it possible for young people around the world to get student loans directly from you.” In developing countries, student loans are virtually unavailable. So, working with microfinance organizations in Mongolia, Vietnam, Nicaragua, Paraguay, and Peru, Vittana is developing student loan programs.
Their guiding principles are that vocational school and college degrees provide real, employable skills; high school graduates show a demonstrated commitment to education; with a mother (or another close relative) as a co-signer there is a clear, direct way to make sure nothing goes wrong; and, by providing loans in urban areas, the loan recipients are near good jobs and good schools.
When a person makes a loan through Vittana, Vittana guarantees that 100% of her funds are delivered to the student. Using the loan (loans are of an average size of US$ 1,000), the student finishes college (or vocational school), gets a degree, and then gets a job. As the student repays, Vittana repays the lender the full amount of her loan. According to their website, “If you lent $25, you are repaid $25. It’s as simple as that. It’s also safe, secure and proven.” Vittana does thorough due diligence of the microfinance organizations with which it works; each of their partner microfinance organizations has a demonstrated track record of high repayment rates, often well above the industry average of 97%. Also, before disbursing a loan to a student, Vittana’s partners verify that the student has been accepted to an accredited academic institution and that he or she has a record of strong academic performance or, in the case of vocational training, a clear dedication to learning a new set of skills.
Here is the anatomy of a Vittana student loan: students apply to Vittana’s microfinance partner for a student loan. The microfinance partner evaluates them to verify past academic achievement, enrollment in an acceptable college or vocational school, and employment prospects after graduation. If the student’s application is accepted, the microfinance partner disburses the loan and creates a profile on Vittana. Meanwhile, on Vittana’s website, lenders can choose who they would like to lend to. After a student’s loan is fully funded, Vittana readies that loan for transfer to the microfinance partner. To minimize administrative and transaction overheads, Vittana aggregates loans for all fully-funded profiles and transfers them on a pre-determined day of the month to their microfinance partner.
As you can see, much like Kiva, there is a time lag here. A lender’s money isn’t technically going from her pocket to the hand of the student. Instead, it is channeled through a microfinance institution, which in fact has already dispersed the loan by the time the lender chooses to whom she wants to lend.
Using the loan, the student attends college, graduates, and gets a degree within 12 months. After the student graduates and gets a job, she begins repaying her loan. Some of the students also work while attending school and opt to begin repaying earlier. As the student makes repayments, Vittana deposits the lender’s share of that month’s repayment. After being repaid, a lender can choose to re-lend funds to another student on Vittana or withdraw funds.
Vittana is pioneering the development of best practices in this field and attempting to solidify an effective model of micro student loans. While Vittana is an extremely new platform and has not yet been subject to the intellectual and rigorous public analysis that Kiva experienced this fall, let’s hope that when its time comes, it passes the test!
Photo Credit: Vittana