Kiva debuts Green Loans

Borrowers in developing countries can now invest in more energy and cost-efficient resources

Microlending champion Kiva announced Friday that it has added a new category to its wildly popular microfinance network: Green Loans. The loans will apply exclusively to low-income entrepreneurs around the world who want to invest in cleaner, more energy efficient resources and materials for their businesses and for their families. For as little as $25, Kiva users can loan to anyone in the world—including the U.S., although no borrowers from the U.S. have yet posted requests for Green Loans. And unlike other Kiva loans, Green Loans can be for either business use or personal use. For example, a borrower may request a loan of $550 to install solar panels on his roof to light his home, while another borrower may request the same loan amount to buy materials for more sustainable farming.

The overall aim of Green Loans is to both save costs on commonly used resources like fuel and electricity, while also alleviating some of the stresses that those resources put on the environment. In developing countries with poor infrastructure, this is especially pertinent, as simply getting electricity to one’s home might be a particularly difficult challenge. To make matters worse, poverty naturally produces obstacles to green living—a low-income individual might only be able to afford a car that guzzles gas like nobody’s business. Or that person might have only enough money for the cheapest fertilizer for his/her crops, which is likely to have the most chemicals.

Obviously, in the long run, these things take their toll. The gas-guzzler car will eat through savings over time, and the cheap fertilizer will eventually burn out the crops, so an investment in more efficient alternatives will save money over time.

Of course—there is the question of how borrowers will be able to repay loans that are for personal use, since cost savings on things like lighting or fuel don’t necessarily equate to a high enough return to repay several hundred dollars. And if that person didn’t have electricity in the first place, then there is no cost savings at all.

Presumably, Kiva would run some kind of screening to ensure that such individuals could afford to repay a loan to avoid becoming mired in debt. But microloans for personal use was the issue at the heart of the recent controversy on microloan sharks in India, who were allowing borrowers to take out loans for items like TVs and cooking utensils that offered zero return and were resulting in borrowers becoming steeped in debt, which led some to commit suicide.

But it seems unlikely that Kiva would let a major issue like that slide without deep scrutiny, considering the company’s brand image and notoriety.

"Most of our borrowers are entrepreneurs, and purchasing a 'green' product, like a solar lantern, allows them to be more productive and make more money than they could otherwise, putting them in a favorable position to be able to repay their loan," a company spokesperson said via email. "Kiva works closely with its MFIs to ensure they are lending money to borrowers in ways that benefit the borrower and ensure everyone is being set up for success."

Kiva President Premal Shah explained in a statement that:

"Much of the developing world spends hours a day gathering wood and other materials for fuel, losing countless hours and often inadvertently damaging the environment. This lack of access to heat sources and electricity, often called 'Energy Poverty,' can have a big impact on quality of life. Microfinance can help provide solutions for energy poverty problems like these by, for example, funding the purchase of high-efficiency cookers and low-propane gas stoves.”

The Green Loans are taking off like wildfire among Kiva users. Over the course of a couple of hours, all of Kiva's Green Loan borrowers (of which there were some 20+) have been fully funded. 

Image source: Kiva.org