How innovative technology can expand microfinance outreach and is changing the profile of donors and lenders

In the age of globalization, people and cultures throughout the world are becoming increasingly interconnected. Advances in technology and the proliferation of mobile phones, computers and the Internet worldwide mean that globally, citizens are increasingly accessible to one another. Innovative microfinance mechanisms that harness the spread of technology worldwide are influencing the potential outreach of microfinance services, the profile of donors and lenders, and the way in which microfinance is interacting with communities.

One innovative technology developed in the microfinance industry, is Kiva, an online portal that enables individuals in developed countries to provide small loans to entrepreneurs in developing countries. Kiva works with handpicked microfinance institutions on the ground, connecting individual lenders, microfinance institutions and individual microentrepreneurs. This online person-to-person lending system provides the opportunity for a number of issues with microfinance to be addressed.

Firstly, one way in which Kiva operates is that it allows individual lenders to choose which microfinance institution they would like to loan their money through, based on the region of the world in which they are operating, the MFIs relative risk rating, as well as their specific target group. Kiva facilitates this process through providing Social Performance Badges to selected field partner MFIs based on their philosophy in lending. These include ways in which the MFIs go beyond providing loans, such as through a specific Anti-Poverty Focus, Vulnerable Group Focus or Family and Community Empowerment agenda.

 As I mentioned in a previous post, microfinance institutions to date have failed to adequately reach those living in extreme poverty. Considering that 70% of the worlds 1.4 billion poorest people reside in rural areas (IFAD, 2010), institutions must specifically target rural areas in order for microfinance to expand financial inclusion to the poorest. Kiva allows lenders to do exactly that. For example, by choosing the Anti-Poverty Focus badge, lenders are presented with a variety of microfinance institutions that specifically target the poorest. The services provided by each institution can then be identified.

Through this process, I found Cooperative San Jose, a credit union that not only extends its services to rural clients in the remote Ecuadorian Andes, but also provides protective services that are vital for reducing the vulnerability of the rural poor to unexpected shocks (Hulme & Mosley, 1996). The protective services offered by Cooperative San Jose are comprehensive life insurance, compulsory savings, flexible loan repayments depending on the income cycle of the client, and business training. Through this field partner I identified Gustavo Nepoleon as a recipient for a loan. He is a rural farmer in the Chimbo region of Ecuador, who grows corn and wheat, but requires a loan to be able to buy more equipment and seeds for his farm. This demonstrates how Kiva allows lenders to direct their resources toward those who need it most by selecting a recipient based on the philosophy and services provided by the field partner microfinance institution.


Ecuadorian farmer Gustavo applied for an agricultural loan. His profile is available on the Kiva website

Another way in which technological innovations have impacted on the microfinance industry is through the changing profile of the donor/lender. Traditional official aid sources such as AusAID allow taxpayers little scope for negotiation into where resources are allocated (Desai & Kharas, 2010). However, with the expanse of technologies such as Kiva, the profile of individual recipients in the developing world are much more accessible, allowing private lenders to directly chose who to loan money to. Lenders can base this decision on the potential borrowers’ gender, business industry, and other factors such as higher education or underfunded regions.

In effect, the use of technology such as Kiva has lead to a ‘democratization’ of aid, whereby individuals can make direct connections with those in the developing world, rather than aid being confined to the traditional funds (Desai & Kharas, 2010). Furthermore, as official aid is increasingly allocated according to the donor country’s own priorities, such as the increased investment of aid into global and national ‘security’ post 9/11 (Howell & Lind, 2009), the increase in private aid facilitates the allocation of resources based on the need on the ground, rather than the requirements or priorities of the state.

Private lending through Kiva creates greater autonomy of choice as to where funds are loaned, and also greater transparency as to the allocation of resources. This may reduce the potential for microfinance models to be introduced into contexts in which it is not appropriate, such as collectivist cultures. As evidenced by the failure of microfinance in Papua New Guinea, the neo-liberal microfinance business model can be detrimental to local communities when implemented by official donors that do not understand the context (James, Nadarajah, Haive & Stead, 2012).

However, whilst attempting to introduce microentrepreneurship into informal and collectivist exchange markets can be extremely problematic, the distinction between individualist and collectivist cultures is not always clear-cut. For example, a ACCION study of the financial behaviour of rural residents in Latin American communities, reports values of hard work, family, humility and solidarity through the traditional practice of informal work exchange, thereby reflecting collectivist ideals. However, these same small-scale farmers and micro-entrepreneurs also express goals of educating their children to lift them out poverty, improving their living standards and growing their crops or businesses in order to achieve these goals, as well as fulfill as sense of accomplishment (Urquizo, 2012; discussed in a CGAP blog post). It therefore appears that in rural regions, community ties operate alongside individualist goals for improved living conditions.

In such circumstances, it is unlikely that microfinance will harm the local community, and in fact, with the goal of extending financial inclusion to the extreme poor, microfinance should be promoted in these areas. It is important, however, that microfinance institutions understand the context of the local community for their effectiveness in increasing financial inclusion, for their services to be used and for poverty reduction to be a viable goal.

One such way in which Kiva shows responsibility in understanding the context of the community is through partnering with the microfinance institution FUNDECOCA, in northern Costa Rica. FUNDECOCA develops Community Credit Committees that coordinate the institutions entire microcredit program in rural areas. As a community, members decide on who receives credit as well as the repayment scheme. As such, the microfinance institution on the ground is tailoring their interaction with the local community according to their needs, and therefore allowing financial services to be expanded to those in the most remote rural areas.

It is encouraging to see that the advancement of innovative technology is addressing some of the aspects of microfinance that I have struggled with, particularly the difficulties in expanding microfinance to the poorest and the effect microfinance can have on collectivist communities throughout the world. Whilst I believe microfinance to be a powerful tool in assisting microentrepreneurs and small-scale farmers in developing countries, and also value equal access for all through financial inclusion, pressing Western forms of economic operation on cultures throughout the world is not something I necessarily agree with. However, it appears that through technologies such as Kiva, these issues can be balanced, and perhaps some of the negative impacts of microfinance can be reduced.


Desai, R., & Kharas, H. (2010). Democratizing foreign aid: Online philanthropy and international development assistance. International Law and Politics, vol, 101-129.

Howell, J. & Lind, J. (2009). Changing donor policy and practice in civil society in the post-9/11 aid context. Third World Quarterly, 30, 1279-1296.

Hulme, D. & Mosley, P. (1996). Finance against poverty. London: Routledge.

International Fund for Agricultural Development (IFAD). (2010). Rural Poverty Report: New Realities, New Challenges: New Opportunities for Tomorrow’s Generation. Rome: Quintily.

James, P., Nadarajah, Y.,  Haive K., & Stead, V. (2012). Sustainable Communities, Sustainable Development, Other Paths for Papua New Guinea. Honolulu: University of Hawaii Press.

Urquizo, J. (2012). Rural Residents: Findings from Five Latin American Countries. Washington DC: ACCION Publications. Retrieved May 7, 2013 from


About georgiaonmymind0212

I have returned to university this year to study a Master of Social Science (International Development) after taking a year off in 2012 to travel around the world. I spent three months in South America and a month in Nepal, and am interested in working with people in developing countries to improve their quality of life and to reduce poverty.
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4 Responses to How innovative technology can expand microfinance outreach and is changing the profile of donors and lenders

  1. Hi Georgia,
    What a pleasure to read your post – Thank-you! I like the way you have tied together the key issues of technology, the individual entrepreneur and the issue of neo-liberalism! In particular, the expanse of your references also brings value to your post (I was really happy to CGAP in there!). So, my question to you is this: within yourself, do you now consider yourself a donor and if so, is it because of the KIVA model or something else?

    • Hi Zen,

      Thanks for your positive comments 🙂

      Interestingly, yes I consider myself a donor, but more because I have donated through the traditional method going through international NGO (I have sponsored a child through World Vision for 4 years now). But I know large organisations such as these do not rely solely on ‘private’ donors/individuals, they also receive funding from governments and corporations. From studying this semester I have realised how much the INGOs have to be accountable to their major donors/stakeholders, in terms of ‘results’, and how this can sometimes mean that the actual needs of the community are not being met. Rather the needs or requirements of the donor have to be adhered to. I think this is very unfortunate, which is why I was quite excited to learn about Kiva for three reasons.

      First, because the recipient determines their need – they spell out what their requirements are, and this is not determined by an international donor. And as lenders through Kiva, we are able to see first hand whether the loan is helping through direct contact with the recipient, rather than through something that is marketed to appeal to our ego.

      Second, I like how individual lenders do not simply ‘donate’, such that the money is gone/spent and the recipient is only helped in the short-term. Rather, lending money for a business seems to be more empowering and the benefits of the loan continue long-term.

      And thirdly, it is also great that the money comes back, therefore nothing is lost, and it can be used again and again to help more people, or continue helping the same person go from strength to strength.

      So to answer your question, although I donate through World Vision, I think the Kiva model allows us to see ourselves as facilitators in helping others help themselves, rather than as ‘donors’, which I prefer 🙂

  2. Hi Georgia,

    Your post is really well written and researched! I enjoyed reading it 🙂

    I think you brought up a point that I found particularly interesting too – that the emergence of organisations like Kiva have allowed the donor more input into how their donation is spent, which is in contrast to how resources are allocated by AusAID.

  3. This post was a pleasure to read, it is written really well, flowed nicely and made a lot of sense! I especially like how you looked at KIVA in a positive light, demonstrating how KIVA can allow the individual to adress the issue of ‘MF not extending to those in extreme poverty and rural areas’ through allowing the individual to select which country/area they would like to donate to. I agree that this is a great factor that KIVA has unlike traditional methods of MF where the individual is able to have more control over where their money goes. Thanks for your insight Georgie! 🙂

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