In Sierra Leone, multi-sector pioneers are transforming financial systems that were built to exclude
Would you kindly introduce yourself and tell us a bit about your work at Kiva?
I'm the chief strategy officer at Kiva, which is a San Francisco based nonprofit that has worked for the past 13 years in microfinance around the world.
Specifically, we have run kiva.org, which is a crowdfunding marketplace, which since its start has moved more than $1.3 billion in micro loans from our microfinance partners to unbanked customers in 94 countries. That is what Kiva has traditionally done.
Our mission is to help end financial exclusion globally, by bringing the 1.7 billion people who are outside of the formal financial sector into the formal financial sector. We do that through three impact lines, one I already mentioned was the kiva.org marketplace. The second is called Kiva Capital, which is a wholesale version of kiva.org. We work with corporations, foundations, and pension funds to help them deploy capital into the unbanked world so that they can provide loans the same way that individuals do through our marketplace. Then the third is Kiva Protocol, which we'll talk a lot more about, but it's an enabling technology to help bring inclusion by design and by default into the unbanked world.
How can entrepreneurs access the lending platform—and ultimately micro loans—through Kiva?
There are two ways. Entrepreneurs can go directly to kiva.org and click the big button that says “borrow.” That's how you start the process of becoming a borrower on Kiva as an individual in the United States. Then, in the unbanked world, we partner with over 500 microfinance institutions and small community banking institutions, so we interact with our borrowers through those institutions.
Do you have an example of what kind of entrepreneurs are asking for loans?
Lots of the loans we give are to individuals in rural villages who might be trying to expand their agricultural or livestock production, or running a small community market, or starting to do something in the textile industry, and they need capital in order to get started or to expand.
You mentioned the 1.7 billion people worldwide who are unbanked. We know that in Sierra Leone, it's 80% of the nation's citizens who are in this situation. Why is that so?
Speaking first more broadly than just Sierra Leone, there is a common problem in the financial sector that has led to financial exclusion by design. The problem is not the fault of the financial sector. The financial sector was built using technology and non-technology that required running copper wire, a brick and mortar bank, people at the bank keeping your records, assets that were backed by gold, and a whole variety of things that largely missed the developing world.
It would have been really hard to do that in developing world, where there were not urban centers. It wasn't financially viable for financial institutions to build all the required infrastructure. As a result, financial services often did not extend beyond urban centers in the developing world, and even in the urban centers the services were not very robust.
So, there is a 30-year gap on financial services in the developing world. In the urban centers, there are some ATMs, and you'll be able to use a credit card, but if you get five miles out of that urban center you need to be carrying cash. That is the case in Sierra Leone.
How does being unbanked impact someone's livelihood?
There are so many ways. To try to simplify it, imagine living your life with cash only, and that is what unbanked looks like at best. You might be able to get a small, community loan, but there's only one provider. If that provider decides not to give it to you, you have nowhere else to go. In terms of quality, it might be at 60% to 100% APR, and there's no market to drive down that cost even though you've never defaulted before. You might take out loans for 15 years and still be paying 60% to 100%. In addition, loans in the unbanked world tend to top out between one and two years on term. That really means you can't get a home loan or an education loan. This creates real, bigger systemic problems like that you don't have access to higher education, because you can't get a loan to pay for it.
So, what is the Kiva Protocol and why are you involved in it?
To really boil it down, the money exists for global financial inclusion. The money exists in the world's largest banks and financial institutions, and the problem is that money is not accessible to those who need it at the bottom of the financial inclusion ladder.
With internet connectivity and mobile device access becoming ubiquitous, even in rural villages, people can increasingly connect to the banking system.
But there are still two big hurdles for unbanked people accessing the dollars available at the big financial institutions. First is the lack of a verifiable identity, which those institutions need to pass their compliance procedures. Even if they could pass the checks, the bank is going to say, "Based on my fiduciary duty, I cannot deploy that capital to this population because I don't understand if they're cross indebted, and I don't understand their credit history."
The Kiva Protocol is meant to solve those two access barriers. It will get verifiable, robust identity into the unbanked world so that they can be identified the same way that I can be identified using my passport in the US, and so that the credit history they have and the activity they're doing in the informal sector can be used by the mobile banks that they are increasingly gaining access to through internet connectivity and FinTech. This will provide them a springboard to enter the banked world.
Wow, that is very inspiring. How will this roll out in Sierra Leone?
This is our first national scale implementation of the Kiva Protocol. Sierra Leone’s 5.3 million adults have a civil identity, which just hasn't been able to be used in the informal sector. In partnership with several UN agencies and the government, we are extending that identity in a digital format to the unbanked world. Then, we are using that digital identity to capture and report back all of the credit activity that happens in the informal sector, so that a person can use their good repayment history to get a loan at a bank. The Kiva Protocol will make it so a bank can trust the data that's coming out of the informal sector.
How does this collaboration with policymakers and the United Nations work? How do you complement one another?
Yeah, it's a great question. Two of our partner agencies, UN Capital Development Fund (UNCDF) and UN Development Programme (UNDP) have worked for the past decade in Sierra Leone. UNDP works on identity technologies to help bring fair democratic elections, and UNCDF works on financial inclusion and building up the financial sector in Sierra Leone. They are two great enablers who know the landscape and who understand what's needed to create a resilient financial sector in Sierra Leone.
We also partner with the government, which is very important. The government of Sierra Leone is ready for this change, which is essential to transition into a digital identity system. They want the system brought down all the way to the informal sector. They want full credit reporting. And they want to bring down the cost of capital in the informal sector.
Did they needed to install new policies and regulations before you could start working?
The government of Sierra Leone has been incredibly forward thinking on financial innovation, not just in terms of solving today'sKib problems, which is what tends to happen in a lot of developing countries, but also making sure they are well set up for the next 25 years.
They were already working on the regulations and policies, and our work helped inform some use cases for that policy. They had already been working with UNCDF and UNDP, and then through their legislature to make sure that consumer protection, privacy, and all of the legislation and regulations that are necessary to have a good, fair, and robust ecosystem for financial inclusion were already in place.
Would you consider the Kiva Protocol to be a public-private partnership?
Yes, I would consider what we're doing with Kiva Protocol in Sierra Leone to be a public-private partnership. Kiva is providing technical capacity and open source technology systems, but we're integrating those with the government identity agency and the Central Bank, and then on the private side with the financial service providers in the country.
I think this is the only sustainable model for to make this type of systems change on a global scale.
It is great to see the Kiva Protocol take shape in Sierra Leone. What do you think is next? Are there any other countries you are looking at where something like this might be possible?
We are talking about similar implementations with many other countries around the world, not just in Sub-Saharan Africa. What I think is interesting is that now—and over the next decade—is when technology is getting to the developed world for real. Over the last twenty years, technology has been impacting the developing world, but it's always been decade old technology. As an example, if you go into Sub-Saharan Africa, a lot of stuff is being run on Excel 97 spreadsheets, which is digital but it is definitely not modern.
With internet connectivity and device penetration, we can create a whole new ecosystem in the developing world that will allow us to have inclusion by design.
Looking into the future a bit more, what is your take on the Facebook currency Libra?
Kiva is one of the founding members of Libra Association, so obviously we believe that it can be a force for good in the world. It is very expensive to move money in the unbanked world, so the promise of digital currency that can be fast, secure, user-centric and cheap is adjacent to what we're doing with Kiva Protocol.
We believe that these problems are so big that we need coalitions of the good and willing in order to bring about the change we want to see in the next generation, or two generations down. I am excited to work with Facebook on this as it gets going, because Facebook has the potential to bring 2.3 billion people along, and you can't get 2.3 billion people into a system without Facebook these days.
If you put yourself into the shoes of a policy maker, which regulations are necessary for Libra to have a positive social impact?
One of the things that's important to note about Libra is that it operates the cryptocurrency, but in order to access the cryptocurrency and use it, a user needs a wallet provider. Facebook will provide one, Kiva will provide one, and all the founding members will provide a wallet service, which will be regulated. In order to use Libra, you will have to interact with the regulator in the country where you're trying to use it. This will require the developed and developing world to ask the right questions about what policies they don't have that they should have. If Libra is the tip of the spear pushing for best practices on consumer privacy and protection it will be great, because it will exist for every other digital service as they come to the developing world.
Would you like to add anything else?
The thing I'd love to leave everybody with is that between now and 2030, we can build an inclusive by design and by default system in the developing world. If we do that, so many of the symptoms we see— financial exclusion, gender disparities, the wealth gap, and others— will be improved. Kiva is going to be doing it. I really hope that a lot of actors around the world will be, too.