MITOS Tool 2 Kiva for Migrants

MITOS Tool 2 Kiva for Migrants Published by:

MITOS Tool 2 Kiva for Migrants Find sponsors for shared funding of your business idea 1 Tool: Accumulation and provision of financial resources from migrants for the funding of start-ups or for business growth. 2 Objectives: This tool will: Facilitate the establishment of a localized and migrant-focused kiva 5 -like web platform to increase the SME s access to cheap refinancing sources in the countries of origin Allow migrants to provide credit to SMEs of their choice Initiate an effective learning partnership with the project s intermediary and referral partners Empower the partners to learn more about the SME credit behaviour (demand side) and ways to tap migrants as funding source (supply side) Allow partners to expand their use of internet technologies in loan disbursements and administration for SMEs 3 Target groups: CoD: Migrants disposing of investible funds and interest in the development of the origin country. They can either be: individuals, relatives, formal or informal migrant associations and federations. CoO: Ultimate target groups: existing SMEs, livelihood producers, cooperatives, social enterprises who are interested in growing their respective enterprises. 5 Virtual network to provide and/or receive small loans; refer to www.kiva.org (kiva originally refers to a meeting- and ceremonies room of so-called pueblo cultures (Native Americans from North America). In-between your project/institution and the SMEs there are secondary targets: (a) intermediary partners (e.g., microfinance institutions (MFI), remittance centres, money transfer operators like Western Union, MoneyGram and other financial institutions); and (b) referral partners (e.g., large banks, chambers of commerce, vocational and technical training institutes, local government units, local NGOs, etc.). Other field partners are potential beneficiaries as well. 4 Problems and potentials of migrants addressed by this tool: Pooling of smaller amounts of remittances into substantial funding for private sector investment Bridging the gap between migrants willing to finance and people in CoO requiring funds Offering lending or investment opportunities to migrants who do not want to become directly involved as entrepreneurs 5 Description: 5.1 Background: www.kiva.org is a web 2.0-based social network, empowering people to lend to an entrepreneur across the globe. By combining microfinance with the internet, Kiva is creating a global community of people connected through lending. It allows potential borrowers to directly access credit lenders. Loans are relatively small and the borrowers are reached via microfinance institutes (MFIs) acting as Kiva s field partners. Every week, Kiva generates 3,000 lenders and serves 4,000 borrowers amounting to US$ 1.3 million with respectable repayment rates ranging from 98 to 99 percent. It serves one 1

loan every 14 seconds. A summary on how Kiva operates can be found in Annex 1. All lenders know how and when they can get their money back, see A Fistful of Dollar: The Story of a Kiva Loan video (http://vimeo.com/2769845). You get a sense of Kiva in motion by visiting its site 6 (http://www.kiva.org) and check the most recent achievement statistics almost instantly. This tool is a Kiva mini version. It uses the same business model as Kiva but will particularly aim for migrants from a specific CoO (may also be for a town, province, district, etc. which is covered by your project) as lenders. It may not have the same outreach but it will likewise be as sustainable. Like Kiva, this tool will allow existing SME clients in the CoO to describe their loan demand for their future expansion and growth projects (or in some cases, search for potential business partners) in the web to attract the attention of migrant lenders, investors, etc. Lack of access to traditional financing sources remains one of the most pressing concerns of many SME, especially those at the bottom of the pyramid. Yet in the future, the demand for credit from this sector is expected to grow since: (a) the underserved credit market is expanding in most developing countries; (b) increasing global pressure to curtail if not eradicate poverty, and (c) rising interest in self-employment and entrepreneurship. On the supply side, portions of the migrant remittances can be channelled to productive instead of purely consumptive use if properly tapped. Migrants who succeeded in their respective countries of residence will one day in their life like to invest (or contribute) in income-generating ideas for their relatives or others (including searching for possible business partners) in their respective countries of origin. 6 Other Kiva like models with differing business models and targets likewise exist. These are: Acumen fund (http://blog.acumenfund.org/), Global Giving (http://www.globalgiving.org/), and Zopa (http://uk.zopa.com/zopaweb/). With this tool, potential SME borrowers can: (a) describe their needs for loans even in their own language, (b) submit to a participating intermediary partner who posts it on the internet site, (c) wait for migrant lenders (as in Kiva) until the money needed is raised, (d) the field partners monitor the loan applications and collect repayments until the loan is completely repaid. There are two ways to use this tool in your project/ institution. First (and this is the easiest and least time-demanding way), affiliate with Kiva. You can do this if you have an existing MFI component (say, with 1,000 or so borrowers) that is willing to be certified as a Kiva Field Partner. More information about Kiva Field Partnerships is available under http://www.kiva.org/partners/info. Second (and this is the focus of this description), build a mini-kiva for migrants. 5.2 The tool: The web-based tool consists of the following elements: 1. Introductory Page. This will include descriptions of: site name, site owners, intentions, how the site operates, donation and payment modes (e.g., credit cards, Paypal (www.paypal.com), Moneybookers (http://www.moneybookers.com/app/), contact details, sponsors list, intermediary and referral partners, real time stream of lenders and loans provided, etc. 2. Lenders Page. presents the lender s registration, lender s information (e.g., location, career, site experience, etc.), rules of lending, etc., lenders most frequently asked questions, facility for accepting donations and payments, featured lenders, etc. 3. Client Page. This will show the borrowers (e.g., name, family, business particulars, and present concerns), how much is needed and where the money will be used, featured borrowers, clients most frequently asked questions, and a real time 2

stream of how much of the needed amount has been raised by the site. 4. Partners Page. This will present the list of intermediary and referral partners as well as the field partners who are collaborating with the project site. Activities Partner development. To use this tool, the Project will need two types of partners: (a) intermediary and (b) referral. It is possible to use your project/ institution counterparts who qualify and are interested in the activity. Other relevant institutions may also be invited. They can form a fund management committee. Among others, this activity will include discussions on: (a) initial portfolio size (see next paragraph), (b) fund management and supervision, (c) transaction processing and costing, (d) risk management and (e) a facility to accept donations and payments (duration: 10 days). Raising the initial portfolio. The initial portfolio does not necessarily need to be large. After all, the loanable funds will be contributed by the migrants. There are many ways to raise the initial portfolio. The easiest way is to use your project s MFI component (if available, otherwise, a small matching grant, e.g. for every $ 1 contributed by your project, partners will raise US$ 3). The raising of the initial portfolio will be covered by a MoU signed between the partners and the project (duration: 20 days). Developing the site. The site does not necessarily need to be fancy at the beginning. In fact, it should grow in functionality with the size of the transactions. A qualified (familiar with web 2.0 technologies) website developer from one of the partners can prepare the platform. This will include: (a) design of site layout; (b) choice of platform (see migrant site tool annex for choices); (c) page customization; and (d) site testing (duration: 3 days). Seeding: Populating the site. Prior to official launching, the site needs some 20 to 30 client profiles. They can be sourced from the intermediary and referral partners (plus the field partners if available). It is a good practice to have a soft launching before the official one (duration: 4 days). Site promotion. The site will be promoted on the internet and in the field. Use other tools in the manual to promote the site on the internet. In the field, your project/institution can sponsor presentations, radio interviews, posters addressed to relevant government, non-government, chamber of commerce, trade and exhibitions, banks and MFIs, remittance handling institutions, foreign workers and migrant associations, and other professional organizations. Site promotion may be implemented by the counterpart institution or a hired events management team (duration: 10 days). Administration and content updating. A website staff assigned by the partners will maintain and update the content weekly (duration: 2 days monthly). 6 Prerequisites: Partner institution. The selection of the partners (especially for the intermediary) is a critical success factor. Their sense of ownership and commitment to the learning process should be developed right from the start. They should see it as a potential core service that they can offer to their migrant clients both at origin and in the residence countries. Prospective partners should have a relatively large portfolio of migrant remittances, a functioning management information system (MIS) and databases as well as underutilized internet servers. 7 Particularities and/or difficulties: Impacts. This tool offers significantly high impact potentials for all stakeholders. SME will gain insights in presenting their projects to the global market for funds and goods. The same applies for the intermediary partners, irrespective of size. They 3

will realize the value of the internet for their lending transactions. This will trigger a transformation process in their respective operations. The impacts can still be enhanced when this tool is linked with other financial services such as savings, insurance and loan products. Inclusive financial systems and innovative partnerships between rural MFIs and remittance operators can generate synergy and other benefits by easing competition and reducing costs, thereby offering more resources and increased options for families to use their capital productively. Difficulties. If needed, a brief feasibility study may be initiated. However, this is not a must as the already existing Kiva site can serve as a model. A database or directory of migrants is needed to keep this tool going in the long run. The initial campaign for migrant lenders needs to be initiated to stimulate the target migrant groups in various countries. 8 Costs: Costs will vary from country to country. Rough estimates are shown below: Items Days US$ Cost/ Unit Total Cost Partners development 10 150 1,500 Raising the initial portfolio 20 150 3,000 Developing the site 3 100 300 Seeding: Populating the site 4 150 600 Site promotion 10 150 1,500 Admin & content updating 2 100 200 Total 7,100 9 Dissemination: With Kiva as model, this tool is applied worldwide and has proven to be an alternative channel for accessing funds. As a migrant tool, it uses specific relations between the Diaspora and their countries of origin, generating substantial amounts of funds based on rather small individual contributions. It uses the internet as means of communication and transaction, and must not be loaded with conditions that block ideas and weaken the entrepreneurial spirit. It offers the borrowers to concentrate on their business and for the migrant lenders to specifically direct their investments however they may want it to be done. 10 Links to other MITOS tools: MITOS Tool 01: Migrant Opportunities Website MITOS Tool 04: Migrant Innovation Treasury MITOS Tool 05: Cash Flow Management MITOS Tool 09: Import and Export Service Training MITOS Tool 12: Migrant Market Place MITOS Tool 15: Virtual World for Migrants 3D Collaboration Prepared by: Dr. Eduardo Canela, CEFE International coordination@cefe.net www.cefe.net 4

Annex 1: How KIVA works http://www.kiva.org/about/how/even-more 1. It all starts with our Field Partners, which are microfinance institutions operating around the world. Our Field Partners approve and disburse a microloan to an entrepreneur in their community. They take a picture of the entrepreneur and write down the entrepreneur s story. 2. The Field Partner uploads the entrepreneur s profile to Kiva s website. The profile, if it s not in English, is translated by one of our hundreds of volunteer translators. After translation, the profile appears live on Kiva.org. 3. Lenders like you browse the entrepreneurs profiles and choose someone to lend to, using PayPal or their credit cards. 4. Kiva provides the funds to our Field Partners by aggregating the loan funds from all contributing lenders. Most Field Partners then use the Kiva lender funds to backfill the loan they ve already disbursed to the entrepreneur. Disbursals can happen up to 30 days before, or 30 days after a loan request is uploaded to the Kiva website. To speed things up and to minimize the number and expense of wire transfers, Kiva works on a net billing system. This means that, for any given month, we subtract the amount of repayments that a Field Partner owes to Kiva lenders from the amount that a Field Partner fundraises for entrepreneurs on Kiva. If the balance is positive, that means that the Field Partner has raised more than they need to repay, and we use those funds to credit your lender account with the repayments due to you. If the balance is negative, then the Field Partner has 30 days to send us a payment for the balance. As soon as we receive that payment, we use those funds to credit your lender account with the repayments due to you. Repayment and other updates are posted on Kiva and emailed to lenders who wish to receive them. 6. When lenders get their money back, they can re-lend to another entrepreneur, donate their funds to Kiva (to cover operational expenses), or withdraw their funds to their PayPal accounts. 5. Over time, the entrepreneur repays his/her loan. The Field Partner collects those repayments and lets Kiva know if a repayment was not made as scheduled. We give Field Partners the option to cover both currency losses and entrepreneur defaults. 5

Annex 2: The Lenders Page 6

The SME Borrowers Page Source: Kiva, accessed on June 28, 2012 7

Published by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Sector Project Migration and Development Registered offices Bonn and Eschborn, Germany Friedrich-Ebert-Allee 40 Dag-Hammarskjöld-Weg 1 5 53113 Bonn/Germany 65760 Eschborn/Germany Phone: +49 228 44 60-0 Phone: +49 61 96 79-0 Fax: +49 228 44 60-1766 Fax: +49 61 96 79-1115 migration@giz.de www.giz.de/migrationdevelopment Authors CEFE International and the global network of CEFE trainers www.cefe.net Design andreas korn visuelle kommunikation, Bad Homburg Printed by Aksoy Print & Projektmanagement, Eppelheim Printed on FSC-certified paper Photographs Front cover: GIZ/Martin Egbert As at July 2012 GIZ is responsible for the content of this publication. On behalf of Federal Ministry for Economic Cooperation and Development, Division Federal government/states/local authorities; migration and employment; returning experts; export credit and investment guarantees Addresses of the BMZ offices BMZ Bonn BMZ Berlin Dahlmannstraße 4 Stresemannstraße 94 53113 Bonn/Germany 10963 Berlin/Germany Phone: +49 228 99 535-0 Phone: +49 30 18 535-0 Fax: +49 228 99 535-3500 Fax: +49 30 18 535-2501 poststelle@bmz.bund.de www.bmz.de