Powerpoint presentations put up by VCs and CEO bloggers were being hurled around the net.  The outlook for the economy looked dire.  The digerati were giving strong advice, but it was double-minded.  One one hand, the smart CEO takes a sober look at the economic situation and reacts with fiscal *conservatism.*  On the other hand, the smart CEO takes a bold look at the competitive situation and reacts with tactical *aggression.* 

Holding these opposing mentalities in your head at one moment is difficult enough.  Holding these opposing mentalities in the collective consciousness of an organization seemed even harder.  I had just got back from Japan.  Certainly I was Buddhist enough for the challenge. 

But the data was mixed.  The holidays were looking pretty good.  In fact, loan volume was actually *up*.  It was just deposits — or new money — that were down 25% since October.  In terms of total loan volume, however, were were on track to have a record December. 

This speaks a bit to the uniqueness of our business model.  There are not many models which *necessarily* grow year over year, even if new customers drop off.  This is because, simply put, most lenders never withdraw their money.  Most lend and re-lend into apparent perpetuity.  The re-lending effect creates an amount of resilience not shared by many businesses.  

So, despite the financial hurricane, Kiva was growing.  However, our network of 100+ MFI Field Partners were being buffetted.  MFIs are being affected in a few different ways.

First, there is a decline in remittances across the globe.  Declining remittances translates to a decline in consumer spending.   A keeper of a small store in Bolivia can no longer ignore what is happening in the economies of North America and Europe.  Remittances coming from the global North are in sharp decline.  Customers to that store who depend on family members abroad have seen their incomes plunge.  The result is a decrease in the purchasing power of local consumers that trickles down to the poorest families.  As a result, MFIs are concerned with their portfolio quality and the ability of their clients to run businesses dependent on the health of remittance dependent economies. 

Second is a decline in exports. I recently experienced the joy of visiting a handful of clients outside of Phnom Penh.  Most of them were silk weavers or tied to the modern silk trade in some way.  Their future is uncertain.  A silk weaver in a remote province of Cambodia usually sells her product — elaborately woven rolls of silk — to a middleman who in turn sells to exporters.  Exports of silk took a sharp fall in 2008, thanks to softening international demand for garments.  When international demand for silk slows, so do the looms of weavers of Cambodia.  If you are an MFI lending to those weavers, you will probably think twice before extending another loan to another weaver. 

Third, MFIs are concerned with a tightening on the part of wholesale lenders.  Wholesale lenders are banks and funds that lend to MFIs in order to help MFIs grow.    Kiva is a wholesale lender of a very unique breed.  We started Kiva in a climate when commercial banks were beginning to invest in top-tier MFIs.  If you weren’t commercial, it was hard to get anyone in this field to listen.  It seemed inefficient to raise $25 a time from millions of people when you could raise more money faster from a big bank or a hedge fund.  Three years later, some of those banks exist no longer.  Almost every commercial funder is reducing the scope of it’s MFI lending practice. 

Over the past three years, Kiva.org attracted hundreds of new lenders per day.   Today, we are closing in on the 500K lender mark.  Half a million users sounds huge by non-profit standards.  However, in the world of e-commerce or social networking, this is a drop in the bucket.  What if we could extend that number to 10M or 100M users?  It sounds far-fetched, yes.  However, on the Internet, you only need to get a few things right — really right — to get that type of scale.  We are still working on it. 

I’m alluding here to the possibility that the actions of millions of people lending small sums may prove to be a dependable source of capital for the microfinance sector.  It is a false competition to pit individual lenders against Wall Street or domestic banks.   However, our experience in just three years says something.  If nothing else, it speaks to the power of individuals to make a difference and to create a dent in the biggest problem of all: inactivity. 

Sorry, I guess I had a lot to write.  This to be continued once more…..