The Kiva City hubbub
Elevating the “unbankable” business owner should become an economic win-win for Madison.
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From the pages of In Business magazine.
February 4, 2019 marked an important milestone for small businesses in the Greater Madison area.
That’s the day Madison was publicly announced as a Kiva City, or Kiva Hub, as it’s more properly known by the global organization based in San Francisco. It may take a while for the significance of this three-year pilot program to gain footing here, but the hope of Nichole Crust, Kiva Capital Access Manager, is that Kiva will soon become a household word.
In fact, planning for the Kiva City designation has been underway for several years.
The international funding program was first brought to the state by the Wisconsin Women’s Business Initiative Corp. (WWBIC), whose President and Chief Visionary Officer, Wendy Baumann, was the first to urge Milwaukee Mayor, Tom Barrett, to fund the microloan program in the state’s largest city.
Says WWBIC’s Baumann, “I had heard and studied Kiva in the developing world and attended global microcredit gatherings where I learned even more about this disruptive model for microlending. I thought, “We have to bring this to the U.S. and to Wisconsin!’” Prior to that, Kiva officials admitted to Baumann that they did not have Wisconsin on their radar. “Well, now you do!” she responded.
Former Madison Mayor Paul Soglin was equally interested, as was Madison Gas & Electric. Pam Christenson, MGE’s economic development director explains: “Wendy was the powerhouse behind this. Then, I was invited to Milwaukee and saw the amazing progress they were making and thought, ‘Wow, we need to do that here!’” Doyenne Group joined in and the race to become a Kiva City was officially on. WBD, Wells Fargo, The Evjue Foundation, and the State Bank of Cross Plains are also supporting the program here.
“I thought, ‘We have to bring this to the U.S. and to Wisconsin!’” — Wendy Baumann, WWBIC
Kiva was founded in 2005 as an international nonprofit. It is an online crowd-funding loan program that allows person-to-person business lending to entrepreneurs who may have been considered “unbankable” in the past — women, people of color, veterans, immigrants, or lower income entrepreneurs and business owners.
The Kiva US platform features no-fee microloans of between $1,000 and $10,000 at zero percent interest. For an entrepreneur with a good idea and notable skills, it can help get them over the hump and on the path to financial security.
Borrowers can use the loans for a variety of reasons, including but not limited to purchasing or upgrading equipment; business management software; raising money for inventory; renovating a space; paying for certificates or licensing; tradeshow booths; or getting a website or marketing plans in order. The Kiva platform made it to the United States in 2010.
Crust is employed by WWBIC but moved to Madison in January full time as required by Kiva in order for a city to become a Hub. Currently, there are only 19 Kiva cities nationwide. Milwaukee was No. 11 as a result of Crust’s efforts, and shortly after she moved here in January, Madison became No. 18.
Kiva US supports entrepreneurs or small business owners who in the past may not have been able to find funding from a bank for any number of reasons — poor credit, lack of capital, etc., but becoming a Kiva City also comes at a cost.
Specific Kiva Hub program costs depend on each city and the scale of the program. For Madison, the total cost was $250,000 of which $50,000 went to Kiva. WWBIC raised the additional $100,000, and Baumann says they’re working on securing grants for a $150,000 pooled-match fund for Kiva Greater Madison, as well.
The Kiva.org website allows individuals to loan $25 or more to help others around the globe through PayPal. Lenders choose whom they would like to support based on what touches their soul. Borrower profiles include a photo as well as a detailed explanation about who they are, how much they are hoping to generate, and why.
For example, there’s Boniface in Kenya, who hopes to raise $1,450 for a biodigester to turn farm waste into resources and expand his milk production; or Rana in Lebanon, who seeks a loan of $1,500 to help pay for her son’s first-grade school tuition fees. Because everything is done online, the Kiva website tracks the number of lenders, how successful each borrower has been in raising the funds, and how many days are left in their 30-day funding period. If the borrower fails to reach their monetary goal, lenders are reimbursed for the full amount.
With the Kiva platform now established in the U.S. including the Dane County area [https://us.kiva.org/greatermadison] individuals around the world are free to lend to low-income entrepreneurs here, as well.
While any small business owner over the age of 18 can apply for a Kiva loan, Crust says the organization typically draws the line at established companies with annual revenues over $100,000.
“Kiva is for everyone,” Crust states, “but it really targets those who have traditionally been unbanked or financially underserved.” However, if a business has revenues of $100,000 or over and the owner falls into one of those categories, they can still apply. Companies don’t need to be startups to apply, although many are.
“We see Kiva Greater Madison as another great tool for the economic development continuum in a community,” notes Baumann. As businesses thrive and grow, the hope is they’ll climb the lending ladder from microloans to bank financing.
It’s already happened, in fact, with one local business, Slide Gourmet Potato Chips, owned by serial entrepreneur Christine Ameigh, whose $10,000 microloan for an electric slicer helped scale the full-fledged potato chip business that supplies — at last count — 34 retailers from Madison to Milwaukee.
“You can always choose who you want to lend to, but the point isn’t to pay off these little loan amounts, it’s to help your neighbor.” — Pam Christenson, MGE
Madison Gas & Electric has a longstanding interest in making the community stronger by supporting entrepreneurship for everyone, and Kiva is one way to do that, notes Christenson.
“When I’m choosing companies to loan to, I look in my backyard first, but I still want to make loans to people internationally,” Christenson explains. “You can always choose who you want to lend to, but the point isn’t to pay off these little loan amounts, it’s to help your neighbor.”
Kiva’s social underwriting process requires borrowers to secure their first loans through family and friends. The number of friends and family needed to lend over a 15-day time period is determined by the borrower's risk and loan size. Kiva considers it their “social collateral.” Christenson says it’s a good litmus test toward an entrepreneur’s viability.
The lender payback period begins 30 days after the loan is funded.
“We encourage small business owners to be in a position to have some money coming in so we’re not setting them up for failure,” Crust says, “because they need to begin paying these loans back right away. In Wisconsin, Kiva has a 95 percent success rate of people funding their businesses.”
As an international organization, Kiva loans fully funded $1.25 billion globally, $29 million nationally, and $1.25 million in Wisconsin through December 2018. Crust argues that even more was funded when considering “recycled” money, when lenders receive payback on one loan and reinvest it in another.
“The loan payback is vital for Kiva to keep working. I see it as a revolutionary way to lend,” Crust adds.
With her feet firmly planted in Madison now, Crust is focused on reaching greater Madison’s underserved entrepreneurs and helping those that qualify onto the Kiva platform.