and the Wealth of Networks: Revolutionary Philanthropy with $31 Billion or 25 Bucks

Aggregating loan capital directly from people, via the Internet, results in very affordable risk capital for small microfinance institutions worldwide.
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Warren Buffett's donation is dominating the front pages, but what about the individual who wants to make a difference even if they don't have billions of dollars to spare? Yochai Benkler's new book, "The Wealth of Networks" is required reading for anyone who wants to see how they can participate in promoting the values they care about. Like a humanist doppelganger to Joseph Schumpeter's notion of "Creative Destruction" (where market innovators eradicate older, less competitive models and structures) Benkler shows that non-market social and cultural production, enhanced through networks like the internet, are not only beginning to transform markets but are also facilitating diversity and expanding justice, political discourse and individual freedoms.

Providing an excellent example of this is Founded by Matthew and Jessica Flannery in 2004, and inspired by the transformations they saw successful small business bring to poor rural communities, was conceived as a way to let average income individuals lend small amounts of money to the working poor -- anywhere. Now, with a small but talented team that leverages the Internet and a network of microfinance institutions to allow individuals to loan as little as $25 to a low-income entrepreneur in the developing world, Kiva has channeled more than $200,000 with a payback success rate of 100% to date. What makes this especially important is that capital from from people (versus banks) is fundamentally cheaper and more risk tolerant. Why? Because people value an emotional return; banks do not. People also have lower cost structures than banks (brick and mortar branches, brand building, etc). Aggregating loan capital directly from people, via the Internet, results in very affordable risk capital for small microfinance institutions worldwide. Today, there are about 10,000 microfinance institutions worldwide and they reach about 10% of the working poor. The other 90% either have no access to working capital, or if there's access, it is at an exorbitantly high interest rate (~100% - ~1000% from the village money lender). Clearly, existing microfinance institutions need to expand and new ones need to form in order to reach the other 90%. A major growth constraint for new microfinance institutions -- many with social missions and limited operating histories -- is access to affordable risk capital.'s 'people powered' capital, thanks in part to free payment processing from Paypal, are at zero interest when they reach the microfinance institution. This new risk capital allows the microfinance institution to reach more of the working poor in their communities and lower the final interest rate to the working poor.

As Will Rogers once said, "I am less interested in the return on my money than the return of my money". allows people the very American satisfaction of both helping someone and getting their money back. Because the initial lenders are not making a profit and the loans from Kiva are at zero interest, Kiva is not a market, but rather an example of what Benkler calls social production, and is exempt from SEC trade regulations.

Still not impressed? Kiva has a fantastic interface where you see the entrepreneurs and a profile of their business as well as how much they have been loaned and how much more they need. Business reports are provided to Kiva users by the English-speaking micro-lending partners, so you can see how your investment is making an impact.

Kiva still has a way to go. As of the writing of this post they have not added the important function of showing the different interest rates of the local lending institutions that receive Kiva's loans and vet the entrepreneur recipients. This important feature would allow you to factor in which microlender was giving the most competitive interest rate to the person you want to help. It would allow Kiva to reform local lending practices (and not just bank-to-microlender) by making sure the the 0% interest is reflected in lower interest rates from the microlender to the entrepreneur. Once this feature is added, in a couple of years this model has the potential to reform the usurious practices of lending institutions in the developing world and create a new class of enlightened business savvy small time philanthropists who effect big time change.

This phenomenon of social production humanizing markets, as exciting as it is, is not an inexorable slide towards greater freedom. Advantages held by monopolies and other incarnations of the most wealthy and powerful will never be willingly acceded, and these advantages are being threatened; perhaps to an extent we haven't seen since democracy itself was concieved. Most importantly, we have to use and participate in these new systems in order to integrate them, and we have to fight for their preservation against those who pay lip service to democratic values but worship the golden calf. I recommend checking out and the other organizations like it and telling your friends.

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