Internet microfinance and venture philanthropy

"Websites let you be banker to world's poor"　- This Reuters' article introduces two organizations: Kiva and Acumen Fund.

Kiva's approach looks more innovative. It aims to be an "eBay for microfinance" by linking small businesses in the developing countries, which need to raise capital, and ordinary people all over the world who can afford to *lend* (not give out) money to them over the Internet.

Most of innovations are not entirely new but combine well-known concepts. Kiva successfully combines the Internet's ability to reduce the cost for ordinary people to participate in the international transactions and the concept of microfinance. Neither of them are quite novel, but Kia created an unique business model by combining the two.

For Kiva's model to grow and increase impact, the organization and its emulators would need not only to ensure low default rate like Dr. Muhammad Yunus' Grameen Bank but also to clear the risk of misuse of the fund. It is critical to establish a rigorous measures to screen, rate and monitor field parnters' repayment reliability and integrity. Only one case in which the funds raised through this model is misused and channeled to criminal/terrorist activities can ruin the whole endeavor.

As it gets bigger, Kiva will also need to be careful about the risk of clouding out the local financial business and creating a new sort of dependency.

The model adopted by Acumen Fund is somewhat less novel, but no less ambitious and probably more reliable. Like Kiva, it emphasizes on the market-oriented approach to solve the problems of global poverty. However, their main funding source are big foundations like Bill and Melinda Gates Foundation, and the size of their investment is much bigger than Kiva. It identifies and supports social innovators, and seeks "to prove that small amounts of philanthropic capital, combined with large doses of business acumen, can build thriving enterprises that serve vast numbers of the poor."

I believe money is important but it alone cannot solve the problems of global poverty. New, efficient mechanisms to transfer charitable money globally is just starting to emerge. It will be much more difficult but equally crucial to develop such a mechanism to mobilize skills and expertise across the world and link them to the needs in developing nations.