Easy + Fun = Addictive

Last week I went to see Premal Shah (pictured left), President of the Microfinance website kiva.org, talk about the user experience on his site and why it has worked. Still young but exploding with user investment during the two years it has been in existence, kiva.org gives users the opportunity to invest in microfinance directly by making small loans to entrepreneurs worldwide with the help of their field partners in 40 countries.

Kiva has been featured in nearly every major media outlet, including Oprah and the New York Times. Being a media darling brought in a flux of loans, which allowed kiva to disburse $22 million from nearly 250,000 lenders across 40 countries so far. All this from three very young entrepreneurs: Premal Shah, 30, Jessica Flannery, 32, and Matt Flannery, 32.

Here's how it works. The featured entrepreneur today is the Mboga Safi Women's Group in Busia, Kenya. The women in the group sell fruit and vegetables and are asking for a loan of $2,950.00, which will be on a repayment term of 10 months, repaid monthly. Shah noted one key to kiva's success is the low cost of entry. So, for $25, I can make a loan to the $2,950.00 which will be pooled with other's loan until they reach their goal of $2,950.00. Once I make the loan on kiva.org, my money is sent to kiva using paypal.

Paypal offers kiva free services which helps keep their costs down. Kiva.org then wires my money to the field partner in Kenya, which is Opportunity International in this case. Each field partner has a risk rating which you can view on the site and the amount of money that can be loaned from kiva.org is based on this ratings.

Shah shared with us the Web 2.0 principles that make kiva.org work: addictive user experience, radical transparency, crowdsourcing, and increasing returns on data.

Addictive User Experience: Shah's equation is Easy + Fun = Addictive. Kiva is easy because the cost of entry is low with a minimum loan of $25. The site is fun because the content is fresh and accessible (pictures and stories).

Radical Transparency: In one case, a field partner in Uganda embezzled thousands of dollars. In response, kiva.org sent out an email to the 5,000 lenders they had at that time early in the game explaining the situation. Shah said that the lenders are primarily engaged in kiva for social returns, not financial (zero percent interest), so if they are told the truth, they can accept the fact that kiva is still new and not perfect.

Crowdsourcing: A $25 loan will make a difference when you have close to 250,000 lenders. With social networking, it is possible to harness the power of large groups to make a difference on large scale, one loan at a time.

Increasing Returns on Data: The more data entered on a website, the more valuable the information becomes. The sheer amount of data contained in user reviews on amazon.com brings users to the website and often leads them to a purchase.

Shah says it's not perfect but certainly it has been very successful in only two years on the web. Kiva makes the user hand-pick the entrepreneur now, but they plan to expand their services to include a blended "mutual fund" package where you state your lending preferences ("woman-owned" or "green business" for example) and kiva picks the recipients for you.