Kiva’s Next Frontier

“Watch out Vittana”, tweeted Stephanie Strom (@ssstrom), the philanthropy writer at the New York Times, in response to Matthew’s tweet that Kiva, the online microfinance powerhouse, may be about to enter the student lending marketplace.

Matthew reported Kiva’s likely expansion in an article in The Economist that argues that lending to finance students in poor countries to get through college could be the “next big thing” in microfinance. There is currently a lot of innovation going on in this corner of the social finance marketplace, with Vittana – slogan: “building a world where anyone can go to college” – having emerged as one of the most innovative and successful. Other promising examples featured in the article are Qifang from China, Lumni and Enzi.

This is an exciting trend. In most developing countries, friends and family are the only source of funding for students after primary and secondary school (if they are lucky enough to even get that much education), and millions of people who could have their lives transformed with a degree don’t ever go to university or college because of a lack of funds.

Two differences between classic microfinance small business loans and student loans have held back earlier attempts to grow the sector. Micro-entrepreneurs tend to be from families embedded in communities that can exert strong peer pressure to repay. By contrast students often come from remote villages, no one knows them, and they have no reputation to lose. Student loans are also much longer-term—up to five years—than the one-year maximum of traditional microfinance business loans. This makes them riskier, especially as microlenders generally rely on short-term funding.

These problems are starting to be overcome, for instance, by lending initially to children of existing microfinance clients or students in their final year of study. As a result, Geoff Davis, a pioneer in scaling up microfinance institutions from his time at Unitus, predicts great things for student lending – possibly even matching the scale of microfinance lending to small businesses within as little as five years. Let’s hope so.

Vittana, which launched in 2009, is a peer-to-peer lending marketplace like Kiva (as Stephanie has reported in the New York Times). Students’ details are posted on the website, and individual members of the Vittana community can lend to the person of their choice. Already over $100,000 has been lent to students in five countries, and loan volume is growing at over 30% a month. It plans to expand to another 8 countries soon. Its founder, Kushal Chakrabarti, made his name creating the recommendation engine of, before leaving in 2007 and catching the social entrepreneurship bug. He believes Vittana can help to “jump start much broader access to higher education in developing countries.”

Yet, as Stephanie’s tweet suggests, the entry of Kiva – slogan: “loans change lives” – into the student lending market could spell trouble for Vittana, and maybe the other start-ups, too. Kiva has a much more established and well-known brand and a far larger community of lenders and of partner microfinance institutions. Its entry into student lending would almost certainly accelerate the already fast growth-rate of this new market. (As with loans to small businesses, the classic microfinance product that Kiva has grown up on, student borrowers are typically selected for the peer-to-peer online marketplace by a microfinance institution that does the basic due diligence. Vittana has close relations with, among others, Xac Bank, a Mongolian micro-lender that is a pioneer of student loans.) If Kiva, buoyed by a $5m investment from the increasingly active Omidyar Network, moves seriously into this market, Vittana et al could rapidly become an irrelevance.

Let’s hope not, but if so, that would seem terribly unfair on pioneers like Kushal Chakrabarti, and wasteful of the expertise and global network of microfinance partnerships that Vittana has built up. In the for-profit world, an online marketplace like Kiva would probably acquire Vittana, benefiting from its expertise, and perhaps giving a leadership position to Kushal, who would anyway bank a large cheque as compensation for losing his independence. In the non-profit world, such a win-win solution seems far less likely, alas – which is why there are far too many small, inefficient non-profit organisations around, many of them struggling on long after the for-profit world would have laid them to rest.

Perhaps the inspirational social entrepreneurs responsible for Kiva and Vittana can find an elegant solution to this serious, deep-seated problem, hopefully in a way that could be replicated across the non-profit world. We can’t wait to write an article on “Kiva, Vittana and the Art of the Non-Profit Deal”.