Solving Central Asia’s Poverty with Cellphones and Laptops

by Joshua Foust on 4/10/2007

I’ve mentioned it in passing before, but Kiva deserves a more explicit endorsement. Basically a peer-to-peer lending service, it connects Internet users with local Microfinance Institutions (MFIs), and can dramatically expand the funds pool available for the poor. Of particular interest to Registan readers are the dozens of businesses in Azerbaijan—including a number operated by IDPs from Nagorno-Karabakh—and a growing number of borrowers in Tajikistan. There is a significant presence in Afghanistan as well, which was recently highlighted by a well-documented trip by New York Times reporter Nicholas Kristoff.

In short, Kiva is a revolution. It combines several threads in modern human development—microfinance, data-driven web applications, and social networking—into a single, compact service that produces not just a greater degree of economic development but a more personal connection. Banks, for example, charge high interest on loans to high risk borrowers—a big barrier to sparking secondary credit markets and financial institutions in poor places like Afghanistan or Tajikistan. MFIs, in contrast, accept far lower interest rates—and Internet lenders accept zero return on their loans—both because they are smaller scale and have easier risk profiles, but also because the amounts of money in play, which for any individual person can be as little as $25, carry so little risk in lending.

In other words, if I were to lend Nurullo Otaev $50 to invest in his shoe business, and I lost that, then I could just consider myself to have donated that $50. If, on the other hand, it is paid back and I then reinvest that money in Mr. Otaev’s neighbor’s business, then I am playing a small part in lifting the entire village of Chkalovsk out of poverty. It is like running your own foundation—an appeal to vanity, to be sure, but an undeniably effective one.

The best part? To date Kiva has posted a 100% repayment rate. Not a single business has defaulted. And the results have been extraordinary. The next step, of course, is integrating mobile phones. Kiva is already working on a cellular-friendly administration system to allow much quicker updates and postings from the field. From there, they plan on expanding their site to allow true peer-to-peer microfinance: direct financing from within the 3rd world.

Here’s another idea: capturing the power of remittances through cell phones. Remittances—the sending of money by expats back to their home communities—is a major force for poverty reduction. The Kiva model is essentially a form of remittance, only instead of family members sending ordinary donations back home it is a loan, with the intention of repayment through financial success. The incentive structure, in other words, one-ups remittances, and takes the idea of sending money to the next level—making money.

We should take the idea of remittances and microloans one step further: use cell phones to coordinate remittance networks in the West. Aryty, a service for the Philippines, has posted some rather stunning success in channeling remittance money through cell phones. Combing that with Kiva’s broader distribution and screening process would increase its funding pool much further than its already impressive growth over the last year. What’s more, it would further atomize the lending structures in play, making it both more accessible and more likely to raise ever higher amounts of capital (far more people in the world have cell phones than have computers with a connection to the Internet).

For further reading, I suggest You Can Hear Me Now: How Microloans and Cell Phones are Connecting the World’s Poor to the Global Economy by Nicholas Sullivan of the World Resource Institute. There should be no mystery as to what his book is about. But it’s still, to pardon the phrase, very Web 1.0—it is one-to-one, big agencies using cellular networks to coordinate their services. It can be taken a step further: by using the technology and mass access pioneered by Kiva, the cell phone/microloan model can be taken to the next level of interaction and mass participation, lifting millions more from the dregs of poverty—not through handouts, but hands up.

You can browse the many potential borrowers on Kiva’s website. It feels strange to advocate limiting your efforts to only three countries, but that’s what we do here. I’m going to dig into this further and start my own loaning programs. I can’t recommend enough that you do the same.


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This post was written by...

– author of 1848 posts on 17_PersonNotFound.

Joshua Foust is a Fellow at the American Security Project and the author of Afghanistan Journal: Selections from Registan.net. His research focuses primarily on Central and South Asia. Joshua is a correspondent for The Atlantic and a columnist for PBS Need to Know. Joshua appears regularly on the BBC World News, Aljazeera, and international public radio. Joshua's writing has appeared in the Columbia Journalism Review, Foreign Policy’s AfPak Channel, the New York Times, Reuters, and the Christian Science Monitor. Follow him on twitter: @joshuafoust

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