Plunging from revered financial arbiter to America's anathema -- the lending industry has descended in dramatic fashion. Expressions of lending industry scorn are now standard fodder in a near constant flow of blogs, newspaper articles, editorials, evening news reporting and cable news analysis. Consumer scorn is not only shared around kitchen tables, places of worship and work place water colors, rather, it is embodied in the Occupy Movement. In fact the movement so embodied the public's disdain, that at the urging of the Occupy Movement, people en masse closed bank accounts at major banking institutions and opted for credit unions.
Arguably, in the last ten years we have not seen a more visceral example of capitalism gone awry. Lending institutions got away from core business principles that required fiscal soundness, conservative growth, honesty in business and a recognition of the interconnectedness of profitability and community. The principled belief that a stronger local, state and national community results in a stronger more consistent bottom line for lending institutions is not just feel good chatter. In fact, the existence of lending institutions relies upon this business principle. If lenders strip all equity and worth from communities then they end up destroying the very source of their income and ultimately, their entire business. Regrettably, we have seen lending institutions all too eager to feast on the hen that lays the golden eggs. It was the cause of the tumult and eventual ruin of Lehman Brothers, Country Wide Mortgage, AIG and others.
Perhaps a refresher course in the form of a business school style case studio would do well by CEO's of top lending institutions. Enter Kiva New Orleans. Kiva New Orleans is a non-profit small business lender where quite literally, you make the loan. Any and everyone in the world, can visit the Kiva web site and loan capital to small businesses.
Here's how it works. Interested small businesses and entrepreneurs, are counseled and qualified by business experts. Once qualified, they post information about their business model and the exact purpose and goal for the loan on the Kiva website. In the post, they explain their business model and loan repayment strategy all with an eye toward persuading site visitors to loan them the capital necessary to make their business grow. Visitors to the Kiva site commit $25 to $250 pooling as much as $10,000 to capitalize the proposed project. The small businesses then make use of the capital and repay the loan over 24 to 36 months. Kiva businesses have a 98.91 percent repayment rate.
So clearly Kiva lenders are not the typical bunch of Armani wearing Wall Street money guys. Instead regular people looking for a chance to help community while simultaneously generating income examine business proposals and build their own loan portfolios.
Kiva, has been operating since 2004 lending more than $293 million over only eight years. Seeing a need for community minded capital in the United States of America, Kiva decided to launch loan projects in Detroit and New Orleans. The results have been incredible. I interviewed staff of Kiva New New Orleans and found out that in only 6 months, 32 area small business entrepreneurs received loan capital, totaling $272,500. 100 percent of these businesses are minority-owned. 66 percent are women-owned. 57 percent are start-ups. 88 percent are low-income. And amazingly, but not surprisingly, 100 percent of these minority small business entrepreneurs were turned down for loans from traditional funding sources... you know, the Armani Suit Wall Street types.
So there is a clear lesson to be learned from the greed induced profit by any means lending model that has spurred a financial crisis inducing massive home foreclosures and nearly bankrupting America. Respect and compassion for community is a requisite ingredient in the mixture that constitutes responsible lending. A business model that destroys the very thing that sustains it, will fail in the long term.
The Kiva approach proves that real people get it. It is only the Wall Street types whose hunger for profitability leads them to devour the hand that feeds them. And while recent $25 billion dollar fines paid by major actors in the lending crisis may send a strong message. It surely is not enough. In fact the entire lending system may need to be retooled. And I know that I suggested a business school refresher course for big bank CEO's, but maybe I was wrong. Perhaps what they really need is a good old talking to by some the regular people who made loans through Kiva to grow business and make community strong.
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