Innovative Loans Series: Lending based on character, not credit scores

This post is the second of a 3 part series highlighting some of the innovative loans that the Kiva community has helped us test and scale.

Kiva has been on the forefront of technological and financial innovation in the social sector for the past 10 years. How do you stay on the forefront of something that’s always changing? You adapt and evolve.

One way Kiva’s evolved is through our direct lending pilot program, Kiva Zip, that fundraises loans for financially excluded and socially impactful borrowers in the U.S.

Through direct lending, Kiva can reach people who could not otherwise receive a loan from a traditional bank or even a microfinance institution. And the program uses an innovative social underwriting model that allows borrowers to use networks and character to establish their creditworthiness, versus their credit scores.

The current reality in the United States is that 8,000 small business loan applications are turned down by banks every day. There’s also been an overall decline in American entrepreneurship due to lack of capital for early stage small businesses. Based on the conventional financial underwriting process, the small business owners who are the most in need of capital are often the same ones that are seen as too risky or unprofitable.

Social underwriting has the potential to unlock capital for these entrepreneurs. This is how it works: Kiva Zip borrowers are required to invite 25 members from their personal network to lend to them first, in order for their loan to be posted publicly on the website. By going through a private fundraising process, borrowers demonstrate their ability to market their business, prove that they have a trust network willing to lend them money and inviting people they know increases the likelihood of repayment. The data supports the effectiveness of this social underwriting process as borrowers with more than 20 invited lenders average a 98% loan repayment rate compared to 88% for borrowers with 0 invited lenders.

More than 11,300 small businesses have been supported through direct lending on Kiva to date but the true impact of the social underwriting process can best understood by reading through Wesley’s story (a formerly incarcerated Native American artist) Tammy’s story (a formerly homeless Transgender bike shop owner) or Gerald’s story (a disabled veteran turned food entrepreneur).

Kiva Zip is also unique in that it involves direct payments as well as direct conversations between the lender and the borrower whereas Kiva’s traditional model operates through Field Partners to communicate with borrowers and administer loans.  

A lenders are invested in the success of the borrowers they choose to support, they have the ability to send direct messages throughout the fundraising process and afterwards to offer words of encouragement and advice. A key part of Kiva’s mission has always been to connect people through lending and so the ability for borrowers and lenders to send direct messages via Kiva Zip’s Conversations Tab, is a significant step towards the fulfillment of that goal. Lenders who open up their wallets are not just financial supporters but can also become business advisors, brand ambassadors, new customers and cheerleaders.

To date, Kiva Zip’s community has grown to 63,868 individual lenders and supported over $10 million in loans to small businesses. To join the Kiva Zip community and learn how you can make a  direct loan, check out

About the author

Joyce Kim

Joyce was born in Toronto, Canada but feels most at home when travelling! Having recently spent 15 months exploring India, Sri Lanka, Australia and Indonesia, Joyce returned with a deepened understanding of the critical role social enterprise plays internationally. Passionate about organizations that have social impact built into their DNA, Joyce built her marketing career working on value-led brands such as Ben&Jerry’s as well as working for a social enterprise start-up. Joyce is excited to join Kiva in order to learn more about microfinance and champion a social enterprise that empowers aspiring entrepreneurs around the world! During her free time, Joyce can usually be found at the beach, practicing yoga or hunting down the best street food in the city.