Neville Crawley was building algorithmic hedge fund trading strategies in the morning, so his afternoons were free to help reinvent Kiva, the wildly successful microfinance crowdfunding platform launched in 2005.
Now he’s putting his ideas into practice as Kiva’s CEO.
“I think there’s opportunity for us over time to become a multi-billion dollar fund manager, I really do,” Crawley told ImpactAlpha in Kiva’s San Francisco headquarters. “I think there’s demand in the market and we have the ability to place a lot of capital in an impactful way.”
In the interview, Crawley laid out Kiva’s journey, and his own. If Kiva 1.0 was everybody’s favorite example of tech-based crowd power, Kiva 2.0 is taking steps to become a serious manager of serious capital. Crawley’s two planks are Kiva Capital, a fund manager that leverages Kiva’s proven distribution system for underwriting loans; and Kiva Protocol, a digital identity scheme that could play a key role in the fintech infrastructure for inclusive financial services.
Kiva Capital is raising the Kiva Refugee Investment Fund, targeted at $30 million for lending to refugees and displaced people, and the communities hosting them. As a first-time manager, Kiva is considering the fund a “proof of concept” for a series of thematic funds (see, “Kiva rolls refugee fund for institutional investors”). In a release, Kiva said the refugee fund has “goal of serving 200,000 borrowers while targeting impact-first returns for investors.”
And Kiva Protocol, Kiva’s alternative to expensive and inadequate credit reports, is rolling out in its first country. The protocol is a way to create unique, secure financial identities to give individuals access to loans “more, better and cheaper” loans and other financial services. This summer, Kiva and the government of Sierra Leone are working to integrate 5.3 million identities in the system, the first national-level implementation of the protocol.
In an email, Julie Hanna, Kiva’s board chair, said Crawley “has done a brilliant job of expanding and elevating our mission at Kiva.”
Crawley’s own journey to Kiva was both accidental and foreshadowed. Trained in fine arts, he started doing music videos for bands and clubs around the U.K., where he is from. That led to a gig in Shanghai, teaching English to models and putting on club shows and, eventually, publishing the China Economic Review. Back in the U.K., he got his MBA and, later, a job at McKinsey, just in time for the global financial crisis.
“My first project wasn’t in the finance world. It was doing research for a telecoms company in Nigeria. And my job was to go out and run low income focus groups and try to understand what someone wanted from their phone,” Crawley says. “And sitting for hours at a time with low-income groups and just really trying to understand their lives in an ethnographic way. Not just, ‘How do you use your phone.’ But, ‘What is your life like? What are you aspirations? What do you want to do? Tell me about your family.’”
“It stuck with me so strongly, the humanity of it. The fact that we all have the same hopes and dreams, we were just born in … situations. I held that for years but I never knew what I might do with that.”
In San Francisco, Crawley over time ascended to CEO at Quid, an early big-data startup, amid a messy management split and shakeup (detailed here). His idea of a sabbatical after several years turned out to be building quantitative trading algorithms for a hedge fund. Working New York market hours, his afternoons were free to, as he says. “reconnect with doing something good in the world.” He joined Kiva in October 2017.
ImpactAlpha: How did you get to Kiva?
Crawley: I met Julie Hanna and we had this first lunch. I was vaguely aware of Kiva. During that conversation, I just got hit by this thought. I was thinking about idle capital. You have money in your Wells Fargo account. I have money in my B of A account. And it sat there earning 30 basis points. We move that money to somewhere else in the world and it’s worth 30-40%. It can change a life, just on a very basic level: someone getting a motorbike, getting a cow, getting an operation. It can do something really truly meaningful and it’s the exact same money. We’ve just moved it from one place to the other. This idea of ‘idle capital’ – if we move it, not only is it worth more, but it can do more good.
I thought, ‘These are things I know about, moving money around and technology are sort of the only things I know about. And I had some exposure to emerging markets. I got totally gripped– like a pebble in your shoe– and I thought, ‘I can do something about this.’
ImpactAlpha: And Kiva was going through its own generational transition. (Co-founder Matt Flannery had gone on to found Branch – see, “Branch raises $170 million to improve access to credit in emerging markets.” CEO Premel Shah left in January, 2018.)
Crawley: I came in with the mandate that I was interested in and the board agreed with, this idea that Kiva has a phenomenal brand, well known, pure. And all of this data. We had moved $1.3 billion to more than 2 million people. What was the biggest expression of that in the world? There are 1.7 billion people outside the financial system. Basic math tells us that some trillions of dollars needs to move. Despite everything we’ve done, we’ve only solved this much (hold up his hands), and the problem is this much (spreads his arms). How would we take on our mission at the biggest possible scale?
Crawley took three months to immerse himself in Kiva’s work, in Cambodia and Kenya as well as Oakland’s Fruitvale neighborhood, and satisfied himself as to the impact of “Kiva 1.0,” the crowd-funded platform that provides capital to microfinance institutions
Crawley: In Kenya, I met a guy who’d had four loans to buy cows and he only had one cow. He said, “I sold three. It’s good. I got one cow and it was productive. And i got a second, third and fourth cow.” And then his wife got throat cancer and he sold three of the cows to pay for the medical bills. And fortunately, she was fine. And he said, “If I didn’t have the cows, she’d be dead.” Because there is no borrowing for medical. It’s such a different framing.
ImpactAlpha: So then you come in and say, how do we take this to the next level?
Crawley: Three things that came out of this. One is that, the Kiva 1.0, there’s much more that can be done here. This is impactful work. We don’t have a money-out constraint – we could place lots more money. We have a money-in constraint. We want more people to come to the Kiva.org platform and make more loans. So we’re doing a ton of work to modernize the platform, with a mobile application, direct credit card processing, and a whole bunch of things we think can lead to more people engaging. Call it Kiva 1.1.
The second is that was talking to microfinance institutions and social enterprises and asking a simple question. ‘Hey, we fund $2-3 million every year through you to the end-borrowers. If we could also offer you a credit line as a wholesale line that had some price attached to it, would that be interesting? And we’d like to help you do that to scale up the learnings from the crowdfunding platform. So, if you have a refugee program, we’d like to provide you a loan to scale that up.’ And everyone I spoke to, the answer was, ‘Yes.’
I talked to a number of foundations in the U.S. and said, ‘I think we can do these interesting slices of impact because we have these 250 partners around the world. We can aggregate demand around refugee loans or women’s economic empowerment, all of these themes that we’ve already lent to and that we understand pretty well. We have granular loan-level data so we can price the risk and know the impact. There was a really positive reception to that idea of having an impact asset manager who is truly impact first with a diverse set or relationships to deploy capital to.
We have historical data. We have the relationships, the pipes if you will, where we can move the money back and forth. And we have the data.
There’s need and demand for a scaled, multi-strategy, truly impact-first asset manager. That’s what we’re aiming to be.
ImpactAlpha: You’re in the process of raising the refugee fund. Is that the first of many?
Crawley: We intend to have numerous more thematic funds. Some of the top themes we’re interested in are “missing middle” small- and growing businesses, with (loan sizes of) $500,000-$2 million. We think there’s an opportunity there, particularly around micro-mezzanine, blended structures. We’re interested in women’s economic empowerment – some 80% of Kiva’s borrowers are women. We’re interested in agriculture.
ImpactAlpha: You’re considered a first time fund manager, even though you have all of this experience.
Crawley: We have a specific type of track record but this is our first fund. I think there’s opportunity for us over time to become a multibillion dollar fund manager, I really do. I think there’s demand in the market and we have the ability to place a lot of capital in an impactful way.
For the first fund it is really important for us to do that well. If we can get that right, we can go from a concept to deploying capital very quickly because of our preexisting network. That’s a very attractive thing and we can come with that granular data. There are some operational things that we’re well positioned to do. As we go out to talk to institutional funders, there’s a demand for a really pure impact manager. Partly also because of our nonprofit charitable mission, the entire goal of this is impact. We need to make the returns we promise, but we’re there to make an impact.
ImpactAlpha: From the (microfinance) partners’ point of view, wouldn’t they rather have free Kiva 1.0 money, rather than more expensive Kiva 2.0 money?
Crawley: It’s not just the price of the money. Each loan that’s crowdfunded, is funded loan by loan, whereas this is wholesale. ‘Here’s $5 million for five years.’ It’s less operationally intensive, and it is also locked in and it’s more money than we could provide to any one partner through the crowdfunding platform. We really think of it as efficient scale-up capital.
ImpactAlpha: You never got to the third lesson from your Kiva world tour.
Crawley: I was out in rural Kenya sitting with circle lending groups. There was a woman who had built a farm over 20 years of borrowing $1000 and paying it back. She had a hardware store. She had built a great life for herself. A terrific entrepreneur. She had this plot of land where should could build a house. But she said, ‘I could never build a house. It costs like $20,000.’ I say “Go to a bank. You’re awesome. You’re totally creditworthy.” But she said, not in these words, it isn’t tied to an identity and it isn’t recorded. She said, ‘I could never go to a bank. Banks don’t bank people like me.’ Her financial life just wasn’t recorded in any centralized place. She had nothing to take for a bank to say, ‘Look, I’m a great credit risk.’
We can lend and we’ve got all of the stories, but it won’t reach a billion people outside the system. And even if we really scale up Kiva Capital, still we’ll be providing some billions of dollars and improving tens of millions of lives, but still if that isn’t recorded anywhere, it doesn’t create systems change. What we really want to do is graduate people to banks. How would we do that?
Well, we have two million identities on our service, from the crowdfunding, and we have credit histories, or at least some part. If we could take that data, and get our partners to take their data, and put it all in a central database, we’d create identity and credit history for maybe 100 million people.
You’ll see a microfinance institution or social enterprise and in the best case they’re taking the identity of some type and recording that on their system. But that system then isn’t being shared with the rest of the ecosystem. There isn’t a system to do that, like there is in the U.S. Our thought experiment was, ‘If this system did exist, we’d create all of these financial identities and they’d have credit histories and they could become bankable.’ In many ways, that could make more of a difference than moving money.
Know your customer
We started to think really hard about how would you actually do it. We ended up having this five-part model. First, most people are going to have access to a cell phone, whether or not they own a cell phone, over the next 10 years. Second, the data access is becoming pretty ubiquitous. There are lots of people working on this problem, whether you’ve got satellites or balloons or whatever it is. And the fifth, if someone is identifiable, and has credit history, and the risk is mispriced, capital will flow. It’s just a belief in markets. So, if we can bring identity and credit history into this system, it’s a full systems change.
So you have access to a device, you have data connectivity, you have ekyc ID, some kind of database ledger where credit history gets recorded, and capital flows. That’s our overall theory of change. And the first two have lots of people working on it, and the fifth will take care of itself. So, what we need to focus on is a very low-cost form of digital identity, and a way for all of the credit, from the quite informal to the very formal, to be written in the same way.
We’re not looking at alternative credit scoring, but actual credit scoring. Even someone living on $2 a day, they have a couple hundred dollar balance sheet. You have rich financial lives way down in the economic pyramid. It’s just not being recorded anywhere. People are living exemplary financial lives. We’re not trying to make an alternative system, we’re trying to improve The System. We need to work with governments, in order to get systems-level change, we need to work with the central bank, we need to work with the minister of finance.
So we worked on building out the technology that could be deployed at national scale, and then worked with UN partners about deploying the protocol. The president of Sierra Leone announced at the UN General Assembly that they’re going to adopt this as their national system. We kicked off implementation in January. Some 5.3 million adults in Sierra Leone will have a digital identity. We’re taking the government data, moving it into the Kiva protocol format, and then connecting up all the financial institutions to be able to accept the identity. So when borrowing and repayments happen, they get written to separate ledger, associated, and encrypted. This wallet will become the functional digital identity.
ImpactAlpha: Sounds like a blockchain application.
Crawley: We’re building on top of the Linux Foundation open-source. We’ve built the system that the government or another third-party could pick it up for different applications.
ImpactAlpha: Does the lending actually take care of itself?
Crawley: If I go into a bank, the financial institution doesn’t have visibility into my other borrowing. That puts constraints on the amount of capital they’re willing to lend, the rate. We think in terms of more, cheaper, better capital. A $5,000 loan is very different from a $1,000 loan. A three- or five-year loan is better than a one-year loan, and cheaper speaks to itself. We’re moving identity in the wallets within 30 days, and we’ll have three financial institutions connected up by the end of the year. So by 2020, we’ll lean into it and we’ll see.
ImpactAlpha: So it’s good for customers. It’s arguably good for banks. Why is it good for Kiva?
Crawley: Our goal is to bring the real systems-level change. Our entire mission is around financial inclusion. Our view is this is the most high-leverage thing we can do to bring that about in the world.
We’re philanthropically funded. Our ultimate model is we’ll charge a few cents per transaction for it to be financially sustainable. In Sierra Leone now a credit report costs $1.40 and has quite incomplete information, we’ll aim for a credit report to cost a few cents. That will support the ongoing viability of this system. Our goal is to have this deployed in many countries, wherever there are people outside the system. We’re ultimately aiming for this to be a very large-scale system.
ImpactAlpha: Does it help or hurt to be a non-profit vs. a venture-backed for-profit?
Crawley: Where we are now is with a purity of mission, a purity of impact. Taking venture capital money, you’re ultimately someone’s pension. It’s allowed us a level of purity. For example, going with Sierra Leone first, which may be very high-impact country, rather than going somewhere different that may have quicker adoption. That’s a luxury we have because we’re a nonprofit. There may be a moment in the future where we need a large amount of capital, because we’re doing 50 more countries and private for-profit capital could help us scale in a way that philanthropic capital couldn’t. I’m open-minded, but we’re impact first.
ImpactAlpha: What’s next?
Crawley: More U.S. We have a U.S. lending program. But 50% of Americans, their lives fall apart if they have a $500 cost. I’m very interested in that as a problem that we can maybe do something about. Getting savings. Investment saving funds that we can target to minimum-wage workers so everybody has three months of savings. Incentivized savings plan to facilitate and create a buffer.