The Changing Ground of Social Finance

This CEO letter was originally published in the Fall 2014 RSF Quarterly.

Dear Friends,

I urge you to check out Kiva Zip, a website facilitating interest-free loans to small businesses that are “doing good” in the U.S. and Kenya. It’s in the initial test phase, but they have already connected 32,000 individual lenders with 4,500 social entrepreneurs, and enabled over $4.3 million in loans.

As a lender, you can provide as little as $5 towards loans that will ultimately be from $2,000 to $20,000 depending on the project. 90% of the loans have been re-paid.

Kiva has been a pioneer in the field of crowdfunding for many years already; this is their most recent innovation. I love it for several reasons:

1. These loans are as direct as it gets. Kiva, the non-profit parent organization, supports the overhead of Kiva Zip, and PayPal is contributing their payment processing services for free. So, at least in the U.S., every dollar you lend goes to the borrower.
2. It seems that many of the loans are extraordinarily catalytic, enabling projects that would not happen otherwise.
3. The community-building features are great, and will continue to develop. Kiva Zip requires U.S. borrowers to invite at least 15 people from their “trust network” to participate in the loan, thereby keeping the borrower more accountable to re-paying it. And the Kiva Zip Conversations option is particularly intriguing: it allows the lenders and borrowers to connect and learn more about each other.

Of course there is also the Maimonides factor. The 12^th century Jewish scholar Maimonides (my-MON-i-deez) declared that the highest form of charity is providing an interest-free loan to a person in need, so long as that loan creates more freedom for the person. I feel strongly that we’ll see a lot more pay-it-forward, interest-free lending in the near future. As a staff, we have been studying the spirit of gift this year at RSF – it’s been a very fruitful journey so far, and I am curious to see where it leads us.

Relevant to our topic this quarter, I’ve learned that the fastest-growing category on Kiva Zip is agriculture; particularly loans to young farmers, for equipment and other needs where there is a big gap in the market. I have witnessed for many years that wherever there is emphasis on Place and Community, social entrepreneurs in the Food & Agriculture sector are the first to show up.

Another brilliant crowdfunding site called Community Sourced Capital was launched recently, based on a single question: what if financial systems were designed to strengthen communities?

Then there’s all the good work happening at Cutting Edge Capital, helping community-based businesses conduct Direct Public Offerings.

At RSF, as many of you know, we believe trust is derived from financial transactions that are direct, transparent, and personal, based on long-term relationships; and we want to celebrate all the efforts being made right now “to bring money back down to earth”, as my friend Woody Tasch from Slow Money is fond of saying. The field of social finance, as we imagine it, is growing.

All the best in this harvest season!

Don Shaffer

President & CEO