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These Entrepreneurs Get the Whole Community Involved in Funding Their Small Businesses

Kiva brings together CDFIs, crowdfunding and more to help small businesses get the financing they need. 

By Erica Sweeney 

Small businesses that receive funding from Kiva have to get more than investors on board with their missions. Each loan from the “microlending” nonprofit is crowdfunded, so entrepreneurs need to tell a compelling story to attract support from the community that their business will serve.  “Every community has a unique history and context that needs to be understood to ensure equitable access to financing, which is why we work with local organizations to achieve our mission,” says Brit Heiring, Kiva’s director of communications. 

One of the ways Kiva helps solve local challenges and meet community needs is through its Hubs Partnerships, which includes partnering with CDFIs, local governments, foundations and other organizations to make capital more accessible. “CDFIs are ideal partners because they share our mission to provide fair and responsible financing to communities that have been historically disenfranchised and have the local context and history to make it a reality,” Heiring says. 

Borrowers apply for loans, which go through an underwriting and approval process by Kiva, with CDFIs and other Hub partners vouching for a borrower’s ability to repay. The loans then proceed through “social underwriting,” where borrowers solidify their trustworthiness by inviting friends and family to fund part of the loan, Heiring says. In the next phase, the loan is posted on Kiva’s website for crowdfunding. Anyone can lend $25 or more to crowdfund the loan. Lenders can choose which entrepreneurs to fund based on the causes that interest them, including agriculture, arts, food or health. 

Funds are dispersed to borrowers once the loan is fully funded. Loans have 0% interest and are repaid over one to three years. The Kiva community has helped fund more than $1.8 billion in loans, and borrowers on the platform have a 96% repayment rate, according to the organization. CDFIs can designate a capital access manager, which is a staff member that’s trained by Kiva on how to share loan opportunities with entrepreneurs. The managers also provide information on best practices for loan applicants and help activate their local lending community to increase the likelihood that loans get funded. 

One CDFI that’s partnered with Kiva is the Wisconsin Women’s Business Initiative Corporation (WWBIC). The organization raised $270,000 through its partnership with Kiva for small businesses, like florists, cafes, a vintage clothing company, a composting company and more. Since many small businesses and entrepreneurs, especially those from underserved groups, are often excluded from traditional financing, Kiva and its partnerships with CDFIs aim to bridge that gap. “By offering 0% interest business loans, we’re able to address the financing gap in equitable ways that are flexible and meet the needs of a variety of communities and business owners,” Heiring says, adding that Kiva’s capital is more “risk-tolerant.” However, investing in more historically disadvantaged groups isn’t necessarily riskier than investing in other groups, which is a common misconception, she adds. For example, refugee groups have been considered a high-risk population by financial services organizations, Heiring says, but Kiva’s data shows that these individuals repay their loans at the same rates as other groups. “By centering on our mission and working with communities that have been denied access to these critical services through traditional means, we’re able to dismantle stereotypes and take active steps toward a more inclusive financial future,” she says. And, working with CDFIs expands Kiva’s ability to help fund entrepreneurs that have historically been excluded from the financial system and “create a world where everyone has the power to improve their lives,” Heiring says.

This story is part of our series, CDFI Futures, which explores the community development finance industry through the lenses of equity, public policy and inclusive community development. The series is developed in partnership with Next City.