How to run your own foreign aid program

I’m at a Ditchley conference on aid effectiveness, where the most interesting thing I’ve learned so far is that Kiva now lends some $50 million a year.

Kiva, for those who don’t know it, is a web-based micro-credit platform.  When you log on, you can go straight to a list of entrepreneurs looking for capital to borrow: entrepreneurs like Nguyen thi Dieu, who’s looking to borrow $1,125 over 13 months to invest in her beauty salon in Kim Dong, Vietnam (since you ask, she’s raised $350 so far; if you want to help out with the remaining $775, click here).

Recognition of micro-credit’s potential isn’t new – it’s three years since Muhammad Yunus won the Nobel Peace Prize for his work with the Grameen Bank in Bangladesh.  But what is new is that Kiva’s rapidly growing size means that the individuals that finance it have aggregated themselves into being a major player in the micro-credit sector.

After all, the largest bilateral aid agency in this field is USAID, which spends about $100m a year on micro-loans: given that Kiva’s only been running for four years, it shouldn’t be long before it overtakes USAID if current growth rates are sustained.

What makes Kiva’s approach so fascinating is that it’s an example of many-to-many network topology: aid can go directly from a miniscule aid donor (like me) to a miniscule recipient (like Nguyen thi Dieu) without having to pass through the giant cogs of the international aid bureaucracy. Kiva runs with just 15 staff, who are funded through a ‘tip-jar’ plus some cash from foundations.

At a point when the challenges involved in sustaining public support for aid spending are proliferating rapidly, Kiva’s approach also has the great value of being able to show real results in real people’s lives – but without falling back into the bad old days of small aid ‘projects’ that effectively undermine state capacity.

If the big story in the aid world over the last 5 or 10 years has been the emergence of large new donors like private foundations (like Gates) or vertical issue-specific funds (like the Global Fund on Aids, TB and Malaria), it’s entirely possible that one of the big stories of the next 5 or 10 will be about the growing importance of many-to-many aid programmes like Kiva’s.  Aid 2.0 is already here…

Update (David): For those of you who are interested, the consultancy I work for has a thriving Kiva portfolio which you can view here (though many of our Kenyan loans went sour after last year’s political violence – something that gave a very direct insight into how conflict ruins lives). As an example, Gladys Ehichioya from Benin City, Nigeria borrowed $700 to buy more crayfish for her fish business. Her business seems to be doing well.