The Power of Microfinancing

Hello everyone!  As a brief introduction, my name is Cody Sheehy, and I am currently a (super) senior at the University of Wisconsin-Whitewater.  My majors are Marketing and Entrepreneurship, and I am a big advocate for KIVA and microfinance.

The story of microfinance starts in the country of Bangladesh with a man named Muhammad Yunus.  Microfinance was Yunus’ idea for the elimination of poverty worldwide.

“Poverty is the absence of all human rights. The frustrations, hostility and anger generated by abject poverty cannot sustain peace in any society. For building stable peace we must find ways to provide opportunities for people to live decent lives.”


That quote comes directly from Muhummad Yunus and his website.  The additional detail is that it comes from the transcript of his acceptance speech of the 2006 Nobel Peace Prize for his work in microfinance dating back to 1976.  He gathered help from Maimuna Begum, who brought him the information for 42 women who would need a loan of 856 Taka in order to become financially self-sustainable.  In case you were wondering, that comes out to $27, or an average loan of about $.64 apiece.  Of course you have to figure that this loan was made in 1976 so we have to cover inflation.  In today’s money, that is $2.63. To most Americans, $2.63 is probably what he have in loose change sitting on our bedside table.

Yunus gave the 42 women the loan out of his own pocket interest free, and the Grameen Bank was born.  (To learn more about Yunus and the early beginnings of microfinance, I recommend the book Banker to the Poor written by Yunus in 2003)

It is almost impossible to fathom what poverty truly looks like, especially on a global scale.  Here are some numbers I received at a recent KIVA conference for college age students.

In the United States, the poverty line for one person living alone is $11,490.  It goes up progressively less as more people live in the household, but the important number is 15.1% of the American population lives under this benchmark.  Another important global poverty benchmark is “extreme poverty.”  We will define that shortly.  The financial benchmark for extreme poverty is less than $1.25 per day.  That comes out to $456.25 per year.  Globally, 17.2% of the world population lives below this benchmark.  That is about 1.2 billion people, or around four times the population of the United States.

Enlarge this image to view a graphical breakdown of global inequality. Credit: IMF

Enlarge this image to view a graphical breakdown of global inequality. Credit: IMF

As you let that sink in a little bit, consider this number: $3,650.  As you might have guessed, this is the yearly total for someone who lives on ten dollars a day.  What percentage of the world lives on ten dollars a day or less?  Eighty percent.  80.  5,600,000,000 people on Earth (assuming a population of 7 billion) live on less than ten dollars a day. The important thing to keep in mind with this group of people is that this is not the percentage of people living on less than the United States’ definition of financial poverty.  This is the percentage of the world’s population that lives on less than one- third of the United States definition of poverty.

These numbers, as staggering as they are, only paint a small picture of what extreme poverty looks like.  To use the words of Jake Harriman (CEO of Nuru International who I saw speak at the conference), “Extreme poverty is the lack of access to basic human rights.”  It is the inability to get to the things that people in some countries take for granted.  Imagine for a second, not having health care, or even the ability to walk down the street to a bank.  Nuru International takes an integrated approach by working with communities on all areas that can cause poverty.  They are an amazing organization and they are worth looking in to if you are interested in learning more about alleviating extreme poverty and stopping terrorism.  Seriously.  It is not a typo.  Just watch this Youtube video of Jake if you want to know why those two go hand in hand:

Microfinance is a great solution, especially today, because the internet brings the ability to help with microloans to anyone with a computer (like you, the person reading this on a computer).  There are a few different websites that are peer-to-peer lending, but the one that is the industry leader and is my personal favorite is called KIVA.  KIVA is the Swahili word for unity, and was founded by Jessica Jackley and Matt Flannery back in 2004, with the first loans being made online in 2005.  With the Nobel Peace Prize being awarded to Yunus in 2006, KIVA took off and has not looked back since.  In just over eight years, they have facilitated more than $490,000,000 in loans (as of November 5, 2013) to more than one million people.

KIVA uses a crowdfunding model for loans on their website by breaking down loans into $25 increments.  A loan of $1000 to an entrepreneur in one of the 73 countries currently serviced by KIVA would be made by 40 different people.  It is usually a pre-dispersed loan (some are post-dispersed after everyone has made their loan, but it is a small percentage) that is back-filled because it does take around two months to actually get the money to most countries on KIVA after everything gets cleared.  However, the repayments received are directly tied to the entrepreneur that a KIVA lender lends to.  A loan on KIVA is a mutual agreement between two people, an entrepreneur and someone who believes that the entrepreneur is going to pay them back.  In case you are worried about getting paid back (which is the coolest part about KIVA), do not be.  KIVA loans currently have a 99.00% repayment rate, which is higher than bank loans in the United States.

The way that I love to describe this process is the old adage, “Give a man a fish, feed him for a day.  Teach a man to fish, feed him for a lifetime.”  I like this adage because it is totally wrong.  These entrepreneurs already know how to fish.  A KIVA loan helps them buy a fishing pole or net so they can sell their fish, repay the loan, and continue supporting their family with that new equipment.

Financially, the borrower pays interest on their loan to the microfinance institution who gave them the loan (this is how the MFI stays in business).  The principle is returned to KIVA, who returns it to their lender.  Neither the lender or KIVA profits in any way (financially, altruistically is another argument) from the loan.  KIVA also takes none of the money that you lend.  Every penny that you put towards a loan goes towards the loan.  Operating costs at KIVA are from “tips” that people put onto their loans.  Any money required to cover the rest of their operating expenses (typically ten percent of what gets lent in a year) comes from grants and other corporate donations.

Positive Activism has a brand new team on KIVA, and we are going to try and help people across the globe!  The best part is that this cause is not really a donation because once loans have been repaid and your money is sitting as “KIVA credit,” KIVA will send you a check for that amount if you wish.  All you really have to do is decide to not have access to your $25 for the length of the loan.  It is really easy, and every time you make a loan on KIVA, it is an amazing feeling.  Seriously, go to, make an account, and join the Positive Activism team (  Every loan you make (you have to select your team the first time you make a loan right under their name when the loan is in your basket) will count towards the team total.  We can see the impact the Positive Activism community has had, and even work together to fund loans we all feel passionate about.

If you have questions about making a loan on KIVA, feel free to comment below or e-mail me personally at

In case you were wondering how the financial numbers look for a KIVA lender, I have personally made 35 loans on KIVA in less than two years and only lost $3.12 on one loan that defaulted the last month.  That is a total of $875 in loans, and my account only has $232.27 on it, with $50 of that coming in the past 2 days (Thanks Mom and Dad for the great birthday present!).  I also helped found a student organization at UW-Whitewater that makes KIVA loans, and Empower has made 117 loans for a total of $2950 on less than $1500 in less than two years.  We have yet to lose any money from a defaulted loan, though we do have a few that are currently behind.  There are never any guarantees when making a loan on KIVA, but it is a pretty safe and a great way to help someone who just needs the financial help to help themselves.

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