USA: Matt Flannery, co-founder of Kiva.org

Matt Flannery is cofounder of Kiva.org, a website that partners with microfinance institutions to allow people to loan money to entrepreneurs in the developing world. But when asked whether he thinks that microcredit will help fight world poverty he is cautious: there are no proved links between microfinance and macroeconomic growth.

Since you started Kiva, microfinance has become a buzzword in the development community. People are making very big claims about what microfinance can do in terms of poverty reduction. What do you think?
Microfinance is the practice of providing financial services to the poor, which is a great thing. The poor deserve to have credit. Then again, I?ve failed to see a study that proves that there?s a linkage between macroeconomic growth of a country and the provision of financial services to the poor. So my conclusion at this point is that microfinance is weakly associated with macroeconomic growth. It?s just one factor; it?s not necessarily going to cause a country?s GDP to increase. It has to be accompanied by things like good governance, infrastructure, transparency in economics, and all sorts of other things that microfinance cannot in and of itself to bring about.

It would be difficult or impossible to build a hospital with microloans, or to build a road. That?s really out of the scope. But a lot of people sometimes get into a trap of thinking these are tradeoffs and you have to choose one or the other. You either have to support microfinance or you have to support SMEs [small and medium enterprises] or you have to support microfinance or health care. And if you?re doing microfinance you have to argue that that is the best and that it?s the magic bullet?some people do that. But really the pathway out of poverty is a combination of so many factors that one set of services can?t really do it alone.

Large financial institutions are becoming more interested in microfinance. How successful will they be?
There are hundreds of funds now that are international money lenders or equity holders in the microfinance industry. What we?re seeing is a great enthusiasm to do that, which is a wonderful thing. Among the set of microfinance institutions in the world there are very few that are really credit-worthy to take a commercial investment? two hundred or three hundred. But there are thousands of microfinance institutions all over the world, so what you have is an increasingly crowded space where a growing set of funds are trying to put a growing set of money into a set of microfinance institutions that is not growing that much and is getting clogged.

What makes Kiva different?
Kiva has different characteristics than a hedge fund or a pension fund or a broker deal like MicroPlace [eBay microfinance website]. Kiva relies on people lending twenty-five dollars at a time for reasons of affinity and emotional reasons. There?s a different risk profile than someone putting their retirement account into microfinance. Because of the different characteristics of the source of the income, we can place money in a different way?smaller amounts in a whole variety of microfinance institutions, some risky, some less risky.

What do you expect of Kiva five years from now?
I think it?s up to our users to cocreate that. But you can imagine things like interest rates on the site, eventually, when that becomes important to our users?if that becomes important to our users. Allowing people to make an actual return on their money might be something we do. Right now our users aren?t necessarily begging for that so we are putting it off.

Another thing we could do is allow borrowers to become lenders on our site. We could allow women in Ghana to lend to women in Mexico. Increasingly you will see a general trend of blurring of the lines between first and third world. We?ve already had Mexicans lending to Mexicans. We?ve had Malaysians lending to Iraqis. We?ve had all sorts of blurring distinctions between the haves and the have-nots and that?s playing itself out on our site, which is really, really interesting to watch.

What do you think Kiva can do to facilitate that?
The real motivation behind Kiva was to blur boundaries between what we think of as poverty and who we think of as wealthy and who we think of as people in poverty. A part of that will be allowing interest rates to float on the site, allowing people to think about the people in poverty as business partners, not necessarily people to take pity upon. That?s really, really important to what we do.

Eventually I think you will see people in the global South actually lending to people in the global North. So someone in Chicago can take a loan from someone in Kampala, Uganda. That will be really, really interesting as well then all scenarios start playing themselves out.

Do you think all this information Kiva is gathering about individual lenders and about microfinance institutions could be used in academic research to look more rigorously at the effects of microfinance?
That?s one of its most promising aspects and that?s something we?ll try to do more and more. Kiva is a rich information resource and it?s going to get richer and richer, which is really exciting. In most cases, it?s actually just a tool for social consciousness more than a vessel for the maximum amount of money. It?s really about outreach. In the future, I think you will see things like social impact measured on the site, cross-country, cross-continent; it will be really interesting to see the social impact play itself out, either positively or negatively on this information resource. Academics will find that useful.

More info
www.kiva.org