Microlending on Main Street: An Interview with Justin Renfro of Kiva Zip


justin-renfro-kiva-zipI recently spoke with Justin Renfro to talk about some of the exciting things Kiva is doing through their U.S. lending program, Kiva Zip. Non-profit lenders play an important role in how many businesses get the financing they need to grow and thrive. These small, micro-loans, often determine whether or not an entrepreneur is able to secure the resources needed to establish a foothold in the market.

Here’s what he had to say:

Ty Kiisel: How long have you been with Kiva Zip?

Justin Renfro: I’ve been with Kiva Zip almost from the very beginning. I was one of their first employees and joined the company about six months after they opened their doors.

Kiva launched their new program, Kiva Zip, in 2011 and six months later I was one of the first employees hired to help the program scale across the U.S.

Ty: I think there are a lot of small business owners who don’t completely understand what a non-profit lender like Kiva Zip does. Will you describe what you do for us?

Justin: There are roughly 25 million very small businesses, often referred to as micro-businesses all across the country. Like many of the bigger businesses in the U.S., they need capital to grow and expand. Unfortunately, because their capital demands are very small, they are often excluded from more traditional sources of capital, like a bank loan.

Ty: You said their capital needs are very small, what do you mean by that?

Justin: A borrower who might be looking for $3,000 or $5,000 would probably be pushed into a credit card or turned away entirely from their local bank. A loan that small just isn’t what the bank wants to deal with. However, that very small amount of capital can have a big impact in the right hands. Let me give you an example.

An entrepreneur in Arkansas was making cheese out of the kitchen of his church. He only produced a few gallons every week, but his friends and other customers loved what he was doing. His cheese was so popular, he wanted to take what had been a hobby and turn it into a business—but he didn’t have the capital to buy the equipment necessary to increase production.

He didn’t need much capital. He wanted to buy a 500-gallon cheese vat, which would grow his production capacity by about 100X. The loan he used to buy the bigger vat has helped Kent Walker Cheese become the biggest cheese manufacturer in Arkansas. A little bit of capital with a very big result.

I could share hundreds of stories like this. It doesn’t always take a lot of money to grow a healthy, thriving business.

Ty: Would you consider what Kiva Zip is doing successful?

Justin: Absolutely. We’re going into our fourth year in the U.S. and have helped more than 1,300 entrepreneurs through crowdfunded 0% interest microloans. These loans have been crowdfunded by more than 51,000 lenders from across the country and around the world.

Ty: How does Kiva Zip work?

Justin: We look at what we do as very similar to how small business lending took place 100 years ago. Back then, a business owner’s reputation in the community was the primary way a banker would use to evaluate his or her credit worthiness. Although times have changed in many ways, we believe this is still a good way to determine who gets a loan and who doesn’t.

Your reputation within your community is what qualifies you for a Kiva Zip loan. We call it social underwriting.

If you can get 20 to 25 people from your personal network to contribute as little as $5 each to your goal—if they’re willing to lend you some money, so is Kiva’s community of 1.5 million lenders.  Your loan request is posted at KivaZip.org where visitors browse through the stories and business descriptions of entrepreneurs and decide who they want to support with a loan of $5 or more. More than 90% reach their goal, this is uncommon among crowdfunding sites.

The only other restrictions are that you must be over 18, you need to have a PayPal account, and you can’t be in the middle of a bankruptcy.

Ty: Kiva started with international microlending, right? Does that experience influence what you do in the U.S.?

Justin: Yes, it’s very similar. In fact, we’ve been supporting entrepreneurs all over the world since 2005—in places like Africa and South East Asia. Some of the same capital access needs that impact entrepreneurs in other parts of the world exist here too. I believe our experience and successes there make it possible for us to help many of the micro-entrepreneurs in the United States.

Ty: Once a business owner has support from his community, what happens?

Justin: Our average loan amount is $5,000 and comes from people all over the country (including people who have benefited themselves from a Kiva Zip loan), roughly 1.5 million lenders, who contribute. Even after the loan is repaid, roughly 80 percent of the funds lent on Kiva Zip stay in the system and recycle. Our lenders are motivated to make an impact, so the capital typically stays in the system by lenders relending to other entrepreneurs of their choice.

Ty: You said some of the lenders are actually people who are getting Kiva Zip loans?

Justin: Yes, about 25-30 percent of our borrowers are also active lenders on Kiva Zip. I think they feel that giving back this way is how they become a good member of the community.

Ty: Do many of your borrowers default?

Justin: Very few of our borrowers default. Our repayment rate is 90 percent. And, that’s with a customer base where 80 percent have been in business for less than two years and includes a lot of startups. These businesses are inherently risky, but decentralizing risk makes it possible to offer them financing they might not find anywhere else.

Ty: What type of small business is a good fit for a Kiva Zip loan?

Justin: Anyone who has been told no and is looking for a small amount of capital. $5,000 is the maximum loan amount for a first time loan request, but once you’ve repaid that loan you can borrow again up to $10,000. Businesses that can leverage a little bit of capital and create impact are good candidates. If this describes your business, visit kivazip.org/borrow to get started.

Non-profit lenders like Kiva Zip fill a niche in small business lending that creates a positive impact for micro-entrepreneurs who would likely have difficulty find funds in other places. By leveraging an entrepreneur’s personal network to get things started, they’re able to evaluate potential borrowers with a different lens than other, more traditional, lenders might and put capital in the hands of small business owners who can turn a little bit of capital into impressive results.