MEET JESSIE GOLDENBERG: entrepreneur, New Yorker, and - as of today, Feb 25, 2013 - Kiva Zip’s 150th crowd-funded startup in the US.

Jessie is a smart, resourceful, double-shift working Brooklynite and NYU graduate. Her 6 month old business idea - turning a used 14-footer truck into a mobile fashion boutique that tours festivals, markets and college campuses called NOMAD - is already revenue-generating. So it begs the question: why did someone like Jessie need to turn to Kiva in the first place?

Too New, Too Small, Too Risky

Despite all she has going for her, Jessie falls precisely into the profile of too-new too-young American entrepreneurs that traditional lenders' borrower assessments consider too high risk. Each of her 4 loan applications were rejected before a fellow fashion entrepreneur pointed her towards crowd-funding as a financing option. And the more I speak with entrepreneurs here in the US, the more I realized Jessie’s experience is more common than I thought.

One Wall Street Journal report cited that on average, 60% of small business loan applications are rejected in the US. Which is why many US-based entrepreneurs are forced turn to other - often very costly - forms of credit in order to keep their business moving, let alone purchase inventory to meet expansion in demand. The reasons are all too familiar: too new/too unproven/too young/too low FICO score.

Which is why Kiva, which today crowd-funds an incredible $1million in small business loans via its website every 2.5 days (!), decided it had the power to do something about this.

Crowd-Funding Economic Opportunity

Kiva’s “About Me” page reads:

We are a non-profit organization with a mission to connect people through lending ... Leveraging the internet and a worldwide network of microfinance institutions, Kiva lets individuals lend as little as $25 to help create opportunity around the world..We envision a world where all people hold the power to create opportunity for themselves and others.

Kiva Zip, a new innovation which began its pilot in a few major US cities last year, may just be the closest thing Kiva has to a living breathing embodiment of this original vision.

Zero Percent Loans to Businesses deemed “Too Risky”

Through Kiva, Jessie obtained (just today) obtained a $5,000 loan that she has 24 months to pay back and carries a ZERO percent interest rate.

Yes, folks. You read that right the first time. There are 3 things about Kiva Zip that, should the experiment work, may just reinvent small business borrowing altogether

1. Close to Zero Cost to Serve: Because Kiva Zip uses digital intermediation (PayPal) instead of physical branches to disburse the loan and collect repayments, the marginal cost of serving loans falls close to zero the more loans it makes. This reverses the traditional lender profit model where fewer and bigger loans are more profitable than many tiny ones.
2. No more faceless lending: The other benefit of connecting startup lenders directly with startup entrepreneur-borrowers is that the lenders - all akready financially invested in each business’ success because of their $25 loans - also start to feel emotionally vested as well. Being a pure digitally transacted loan, Kiva Zip also enables each borrower to connect directly with their own mini-social network of lenders turned brand ambassadors.
3. Replacing Credit-based lending with Character-based Probably the single boldest and most mind-boggling feature of Kiva Zip loans is what's actually missing: and that is credit scores. In a country where FICO proudly announces on its website that “90% of top US lenders make lending decisions on FICO scores”, Kiva Zip is finding a way to pinpoint hundreds of thousands of perfectly sound small businesses that credit-score-led lending decisions simply exclude. And that way is simply.... Trust.

A loan product based on.... TRUST??

With Kiva Zip loans, there are no credit score pulls for loan eligibility, and no collections agency to recover unpaid debts. Kiva recruits established hundreds of small business-coaching organizations who they trust, and these organizations role in the Zip system is to publicly recommend entrepreneurs they trust. Kiva's lenders do the rest.

Basically, it works like this: Kiva's 1.3million registered lenders trust Kiva, who then trust the partner organizations, who in turn trust the entrepreneurs to repay. A good old fashioned Circle of Trust, and one with surprisingly high repayment rates (already inching towards 90% at the end of 1 year, despite the perceived “high-risk” borrowers Kiva Zip was designed to serve).

...But Is it working?

Yes, but it could work even faster with your help. Here’s what you can do right now:-

1. If you know organizations in the USA that work directly with entrepreneurs, and would like to see more of these worthy small businesses get access to Zero Interest capital, get them to contact us via our website Zip.kiva.org (or if you're in New York, let's talk ! sulin.lau@fellows.kiva.org )
2. If you’re an American and a Kiva lender but have never lent locally, try it. Look for borrowers in your home city at zip.kiva.org/loans and support a new business to open up in your city for only $25