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Friday Entrepreneurs: Premal Shah,

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A lot of you have emailed asking what I think about Before I cover them, I want to introduce you to my friend Premal Shah, who’s the president of Kiva, a website that lets you make microfinance loans to entrepreneurs in the developing world. He was one of the early guys at Paypal and has had some great experience with microfinance, and now he’s building a great way to help entrepreneurs around the world using microloans. This is a white-hot field in the world of social entrepreneurship.

As you read this one, notice a few things:

  • Here is a smart guy with lots of education, experience, and opportunities. Yet instead of staying at a high-paying job, he’s taken the insecurity of working on something he’s really passionate about. “But Ramit,” you might say, “he can leave his job because he’s probably made lots of money in the past.” Maybe, maybe not. But do you get the risk-taking attitude once you’re rich? Or does it sometimes actually go the opposite direction? Maybe success comes after risk-taking, not the other way around.
  • He talks about social return, something we’ve only skimmed on this site. But in my own work in microfinance and with the Omidyar Network, I’ve become a big adherent of the idea that there’s more to ROI than just money.
  • The fancy, smart guys working on Kiva face the same challenges that you do with your blog, project, or whatever. They’re trying to figure out how to spread the word, build a better site, avoid the chicken-and-egg problem, and encourage their visitors to do something useful. Whether you’re a 1-man shop or a fancy-pants company, the problems are often eerily similar.
  • I love, love, love his answers to my questions about barriers.
  • He’s looking for volunteers. If you’re interested in getting involved in working with great people to help low-income entrepreneurs around the world, check out the site, send me an email, and I’ll introduce you to Premal.

What is Kiva? is a new website that allows individuals to make small loans to low-income entrepreneurs in the developing world (microfinance). In this way, people like you can help provide affordable working capital for the world’s poor — money to buy a sewing machine, livestock, etc. — empowering them to start a business and earn their way out of poverty.

The usual loan terms are 12 months and over the course of your loan, you’ll receive periodic repayments which you can then re-invest in another entrepreneur or withdraw. In addition, you receive real business updates on the entrepreneur you’ve sponsored. So far, we’ve had a 100% repayment rate and we’re expecting at least a 96% repayment rate over time.

We think of Kiva as facilitating a kind of ‘grassroots capitalism’ — people here in the U.S. lending – not donating – a small amount to low income entrepreneurs in the developing world. For the low income entrepreneur, small amounts like $25 or $100 can provide the working capital needed to explode their small business growth, create a sustainable livelihood and enable them to repay you as an investment partner.

How is this different than lets you lend to people in the U.S., with the intention of making a financial return. lets you lend to people in the developing world, with no intention of making a financial return – just the return of your principal. It’s like spotting your friend $25 — there’s usually no expectation of interest.

However, there is a large *social* return with

For example, if you help finance a $100 irrigation pump for a low income Ugandan farmer, this farmer could increase her annual income from $120 a year to $800 a year. This increase helps create a sustainable livelihood for her family — and allows her to repay your loan.

Later this year, we’ll allow you to earn interest like — it will likely be between 1% – 5% and will vary based on the entrepreneur on the site. We suspect that lenders will weigh interest rate, risk and social impact between different entrepreneurs on the site – and pick accordingly.

What’s your role at Kiva?
I serve as President of and together with the co-founder and CEO, Matt Flannery, we co-lead the organization.

What’s your background?
Here’s a snippet from my bio on the website:

“Prior to Kiva, Premal was a Principal Product Manager at PayPal, an eBay company. During his 6 year career at PayPal, Premal drove a number of key initiatives including a year long project defining eBay’s role in economically empowering the global working poor. A number of corporate initiatives have come out of this effort, including PayPal’s support of Kiva. Prior to PayPal, Premal was a strategy consultant at Mercer Management Consulting in New York. Premal has had a long standing interest in microfinance. In 1997, he was awarded a grant from Stanford University to research microfinance in Gujarat, India. More recently Premal co-founded the Silicon Valley Microfinance Network and spent 2 months in India working to refine / validate Kiva’s model. Premal graduated with a B.A. in Economics from Stanford University.”

Well, I guess I’m sort of impressed. How’d you get started doing this?
When I was in college, I learned about microfinance — the impact of small loans to the working poor — and I got pretty excited about it. But once I entered the world of work, I got really busy and just didn’t have time to do anything about it. After about 5 years at PayPal, I was given the chance to take a sabbatical. I decided to go to India for a few months and work in microfinance.

What bummed me out was that microfinance is such a great tool to alleviate poverty and that there is a shortage of capital — but that there is no way for the average guy in the U.S. to invest in microfinance.

So, while I was in India, I posted up a loan solicitation on eBay for a low income women doing small crafts in India. The eBay listing got taken down because it was a violation of eBay policy to solicit investments on eBay. At the same time, my friend Matt and his wife Jessica started and I eventually left PayPal to help them get it started.

What were the biggest barriers to getting it started?
1) Listening to too many people before we built the website — it’s better to just get started and push the idea as far as you can on your own — and then, once you hit real road blocks, seek the advice of others to solve real problems.

2) We were worried about the regulatory hurdles — is it ok to allow Americans to make loans to the working poor abroad. We spoke with the SEC and I think that after they saw the spirit behind what we were trying to do, they encouraged us to move forward.

What about now–what are the biggest barriers to success?

Getting the word out. Kiva is like an eBay for microfinance. We have to make sure the that the supply and demand on the platform are in balance. We launched 9 months ago.

In the beginning, we had too many lenders — because of early pick up in the press (BBC, CNN, Wall Street Journal) and not enough 3rd world businesses available to sponsor on the site. Our site consistently ran out of ‘inventory’ — it was embarrassing.

We solved this problem by inviting more non profit organizations internationally to post up local businesses — we’ve grown from 1 country to 13 countries in the last few months. Now we need to get more lenders to the site to absorb new waves of ‘inventory’ that’s being posted on the site. So we’re turning our attention again to getting the word out here in the U.S.

How big is Kiva?
We have 8 full time staff (all volunteers, but still full time) and at least a dozen part timers. Craigslist is less than 20 employees. We think that we should one day scale our volume and revenue stream to cover a full time paid staff of 10 in about 3 – 5 years.

How did you publicize it at the very beginning? What about now?
Kiva is alive because of the blogosphere — we didn’t have a big marketing budget so we put out a press release when we first launched publicly 10 months ago and 1 blog picked us up right away. Then 10, then 100, then 500 including the world’s top blog in terms of traffic — Daily Kos.

We think most of our early users have come to Kiva after reading about it in the blogosphere. These days, I think the blogosphere is still driving a lot of traffic to our site, and I think there’s a lot of word of mouth and mainstream press that’s picking up on The biggest break recently was being selected by BusinessWeek as their “Innovation of the Week.”

“Ok, so I have this idea…”
If someone were interested in doing something entrepreneurial–maybe starting their own business–what lessons could they take away from (1) Kiva and (2) your own business experience?

1) Find a partner you trust and someone who complements you on things you are not necessarily good at.

2) Just get started — don’t keep researching endlessly. Test and learn.

3) One of my favorite quotes is “Nothing works unless you do” — there’s no substitute for just working hard on a sustained basis to will your idea to be.

Are you hiring?
We don’t have any money, but we’re hoping to raise about $1.5 million to build out a paid staff. If you’re interested in volunteering to help us get the word out about — we could use the help!

Premal Shah

If you’re interested in learning more, check out To be featured as a Friday Entrepreneur, check out the meager guidelines.

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  1. This is frickin’ awesome. Seriously. I’m going to have to integrate this into my personal finance plans.

    One point is unclear from this interview and from the Kiva site: Is Kiva a non-profit? If not, how is it making money, and how does this affect the transactions?

  2. Well, how would be comparable to, it is just nonsense at all.

  3. That’s awesome, I funded two business owners.

  4. Is it possible to do something like this for the poor of the U.S. There are areas of the Appalachian mountains, and the inner cities with families that are in extreme poverty even with a low paying job. These working homeless can’t get their families out of a car or shelter since their isn’t enough housing to accept them at that income level. I volunteer at a homeless shelter in the inner city. Low skilled jobs here, such as restaurant work or cleaning, require spanish or being bilingual and there are no free spanish classes here. Maybe they could start a service business of some kind that would make enough to be accepted by housing. I wish there were some kind of low cost transportation system to move these families to the areas of the country where there are low skilled jobs that could accept them which would let them be able to afford housing. There are economic refugees in the U.S. from the U.S.

  5. winter: Unfortunately for someone poor in the US, the cost of living is so much higher than in a developing nation. $25 in Ugandan is a lot different than $25 here.

  6. Kiva has applied for nonprofit status. They are funded by backing from other organizations, and I read they hope to be self-sustainable by 2008, either through small charges to lenders or small capital fees charged to the borrowers. Check out their FAQ page. That’s where I got that info from.

  7. i am so excited to read about! i was just in peru and we were brainstorming about ways to help squatters begin to have an income other than begging and selling candy.

    a $200 micro loan could help someone set up a bakery that would benefit the whole community.

    Thanks for posting about this right now, Ramit!

  8. You can’t knock the spirit, but how is this a smart financial move worthy of your blog. If currently you earn NO interest then there is NO money to be made. This has NOTHING to do with prosper. Shouldn’t this be posted under a charity post. I mean under the best circumstances you only get your money back.

  9. Steffy: This blog is about being rich, which encompasses more than just making money. As I mentioned above, there’s more to ROI (return on investment) than just money–a social return is very valuable to some people.

    I think is a perfect post for this site (and I’m happy some of the other commenters think so).

  10. This is a smart financial move because as the local economies in other countries grow and prosper, this in turn helps create a middle class which wants American goods, or goods from American companies. What is happening in China and India can also be done in these other countries if the tools for growth are put into place. A bakery or a market may not sound like much, but they can create a large amount of wealth for a family and the other people that live near it. The problem is these people don’t have access to capital. The banking system isn’t there, and you can’t call up Citibank and say “Hey, can I borrow $1,000?”. This presents a major problem of how do these local people gain the capital to grow their businesses if nobody will lend it to them, not because they’re horribly risky ventures, but because the capital just isn’t there. How many businesses in America pay cash up front for a new machine or building? Almost none. A lot have a line of credit, credit cards, leases, etc. This isn’t an option in Nigeria or Peru or wherever (small loans are extremely difficult to get, especially if you have no idea how to get one or that you even can). Note, that a middle class doesn’t solve all of a nation’s problems, but if people have money to spend, they’re going to want goods and services that come from companies we work for, or businesses that we start. As they prosper, we prosper, and that is why this is a smart financial move.