US Trustee Training Manual

August, 2012 US Trustee Training Manual 1

Contents Introduction to Kiva and Kiva Zip Welcome to Kiva How Kiva works… Welcome to Kiva Zip Promising early results Example borrowers The role of trustees Borrowers and loans A couple of cool product features

Welcome to Kiva! Kiva is a non-profit, based in San Francisco, that enables individual lenders to make person-to-person loans to individual borrowers around the world. Kiva made its first loan in Uganda in 2005, and has since made over $300m of loans to borrowers in over 60 countries.

How Kiva works… 1 2 3 Kiva has almost a million ‘lenders’… …these lenders visit the Kiva website… …And make a $25 loan to an entrepreneur around the world. Adding a number of $25 loan ‘shares’ together can make up a significant loan… Lenders 4 …in the typical Kiva model, these loans are administered by Kiva’s partners… Kiva Partner Entrepreneur 5 …over time, as the Entrepreneur repays the loan, the $25 loan ‘shares’ are returned to the lenders , who can then relend the $25 to someone else. For more information, check out www.Kiva.org

Welcome to Kiva Zip! Kiva Zip is a small pilot project, launched by Kiva.org, to drive innovations in person-to-person lending. The principal difference of the Kiva Zip model, is that the partner is removed, so the loan goes directly from Kiva to the borrower. Kiva has three principal aims for the Kiva Zip pilot: Expand borrowers’ access to capital, by making loans to borrowers who would not qualify for conventional loans. Lower the financial costs of borrowers by leveraging new technologies (e.g. disbursing loans via Paypal). Enhance the personal connections between Kiva lenders and borrowers by enabling them to communicate on the Zip website. The Kiva Zip project funded its first loans in December 2011.

Promising early results… We have posted over 60 US loans to the Kiva Zip website… …Working with over 30 trustees in 5 states Over half of those loans have been to businesses within their first year of operation; about a third have been to startups So far we have a repaymentrate north of 97% Perhaps most exciting are the connections and community that we are building: Lenders saying: “Montoya! So glad to see you are boldly taking this step. You go girl!” Borrowers saying: “Thank you Matthew and Mark for your support and best wishes!”

Example borrower 1: Victor Start-up business Created 5 part-time jobs Repaid 4 months on time Lender linked to his Yelp profile Sold coffee at a recent Kiva event “Thank you for trusting me. People don’t normally trust people like me”

Example borrower 2: Christina Start-up business “Christina, Where can I see your clothing lines? Do you do trunk shows? Best of luck.” “I plan on being ready to go in 3-4 weeks! I am however participating in a "booth vending" event with my merchandise on March 31st.”

Contents Introduction to Kiva and Kiva Zip The role of trustees So who are trustees? Trustee criteria and approval process Process for endorsing a borrower Example trustee profile and endorsement Trustee ‘credit limits’ What’s in it for trustees? Borrowers and loans A couple of cool product features

So who are trustees? Trustees play a crucial role in the Kiva Zip model. It is the responsibility of the trustee to: Find eligible borrowers for a Kiva Zip loan Do financial and character due diligence on these borrowers Publicly endorse them on the Kiva Zip website And provide ongoing support throughout the loan term Trustees have no money at risk if a borrower they endorse does not repay, but their reputation is at stake.

The main qualifications for a trustee are that they should have strong answers to the following questions, which appear on their public profile: How will you determine whether or not the business plans of the Borrower(s) you endorse are sound? How will you know whether the Borrower(s) you endorse will have the "character" to repay a loan? Please describe what type of business, financial, technical or other support you plan on providing to the Borrower(s) you endorse. How will you establish whether the Borrower(s) you endorse are in debt, or have a history of debt? How will what you find affect your endorsement of their loan application? Why can't the Borrower(s) you endorse access traditional loans? Both individuals and organizations can qualify to be trustees, if they have compelling answers to these questions. Kiva Zip Trustee criteria

Kiva Zip Trustee approval process Kiva Zip assesses trustee applications according to this process: We review the trustee’s online application form, including the answers to the questions on the previous page. We connect with trustees on LinkedIn and/or Facebook, if they have either/both of these accounts. We interview trustees either in person or on the phone. We examine the trustee’s past behavior on Kiva (or Kiva Zip). For example, have they ever made a Kiva loan in the past? For organizational trustees, we review their website. For individual trustees, we review their resumé. We assess whether trustees have experience in the field of microenterprise or economic development. Trustees that lack experience in this area are initially able to endorse fewer borrowers for smaller loan amounts.

Once a trustee has identified a borrower they want to endorse, there are four principal steps before the borrower can begin fundraising for an interest-free, crowd-funded loan on the Kiva Zip website: Process for endorsing a borrower 1 2 3 4 Loan application Kiva Zip review Trustee application Trustee endorsement The trustee fills out a ‘trustee application’ form, telling Kiva Zip (and lenders) why they want to become a trustee This is a one-time, online form, which typically takes about 30 minutes to complete For every borrower they endorse, a trustee writes a ‘trustee endorsement’ An endorsement is only a few questions long, and usually takes about 10 minutes to complete When the trustee has submitted the endorsement, the borrower completes a ‘loan application’ This is a longer application form, and can take a couple of hours to fill out. Again, it is all online to make life easier! Once the loan application has been submitted, the Kiva Zip team will review the loan, before posting it to the website to begin fundraising From there, most loans take about 3-4 weeks to fully fund

Example organizational trustee profile Photo (or logo) of the organization List of borrowers endorsed Link to website, Facebook page, Twitter feed, etc. Information about the trustee, how they will do due diligence on borrowers, etc.

Example trustee endorsement The trustee endorsement shows up as a tab on the borrower’s loan page We ask trustees four simple questions about why they are endorsing the borrower for a loan

Trustee ‘credit limits’ We place limits on the number of borrowers that each trustee can endorse, and the maximum size of their borrowers’ loans. Initial limits for trustees are as follows: Over time, as trustees’ borrowers repay their loans on time, these limits can be increased.

What’s in it for trustees? We see there being several significant benefits for trustees, as a result of partnering with Kiva in this exciting pilot: Awareness building – Kiva has almost a million users, and trustees (especially the top-performing trustees) can increase the visibility of their organizations to this audience Potential for positive publicity and PR from partnering with Kiva on this highly innovative, ground-breaking project There may be financial benefits in the future for top-performing trustees, although this is not concrete yet. Trustees may also find it easier to fundraise themselves, by highlighting this partnership with Kiva Networking – meet other trustees doing similar things in different parts of the country (or even different countries); or meet lenders or borrowers Most important of all, we want trustees to be motivated by their desire to help the borrowers they are endorsing

Contents Introduction to Kiva and Kiva Zip The role of trustees Borrowers and loans What’s in it for borrowers? Borrower selection criteria What do the loans look like? Disbursals and repayments Recommended borrower checklist More resources A couple of cool product features

What’s in it for borrowers? (i) There are many significant benefits to borrowers of Kiva Zip loans Ability to access capital – which they otherwise might not be able to. Zero interest or fees –makes it a great deal for borrowers. Online application – much less hassle (no paperwork, fax machines, pigeons!). Speed of obtaining the loan can be much faster than many conventional financial institutions. Some Kiva Zip borrowers have got their loan in less than a month, compared to six months for some banks. Flexibility – grace periods are available for agriculture and start-up loans; optional weekly or monthly repayment schedule, etc. Personal connections – some borrowers value the personal nature of Zip loans (vs. bank loans), and appreciate that individual lenders have put their ‘trust’ in them.

What’s in it for borrowers? (ii) Benefits to borrowers (continued): Marketing – borrowers can reach a million potential customers via the Kiva Zip website. As investors in the borrower’s business, Kiva Zip lenders also make for great potential ‘brand ambassadors’. Networking –lenders (or other borrowers and/or trustees) might have experience or connections in the borrower’s industry. Having said all that, there are some potential cons as well: Some borrowers might not be comfortable sharing personal details online; loans can take several weeks to fund, and there is no guarantee that they will fund at all; borrowers do not benefit from the technical assistance and financial literacy training offered by many banks and MFIs. But the feedback from borrowers so far has been fantastic! –See this blog post for some examples

This is the most significant role that trustees play in their relationship with Kiva Zip, and there are several criteria that borrowers must meet, in order to qualify for a loan: Borrower selection criteria “Hard” criteria Must be met unless there are exceptional circumstances “Soft” criteria Kiva Zip leaves it up to trustees to make a judgment call in these areas Less than $3,000 of past due debt Debt to income ratio less than 35% (click here to calculate) Not in bankruptcy / foreclosure proceedings or about to enter them Loans must be for a legal, business purpose Loan must be less than 75% of the borrower’s annual income Borrower must be over 18 Borrower must have strong character Borrower must have a strong business or business plan, and the loan should be economically viable Borrowers’ personal finances must be sound (e.g. not heavily indebted) The loan should have a significant positive social impact (e.g. creating jobs in a low income area, borrower is otherwise financially excluded, etc.)

What do the loans look like? 0% interest Business loans Small size (less than $5,000) 12 months term (or less) Grace periods available for agriculture or start-up loans Repayments made in regular weekly or monthly installments Disbursals and repayments made electronically via Paypal Posted and ‘crowd-funded’ online

Disbursals and repayments Kiva Zip uses Paypal for both the disbursal of loans and their repayment. If borrowers do not already have a Paypal account, they will need to sign up for one, which they can do here: https://www.paypal.com/us/signup. Paypal have a dedicated customer service team, in English and Spanish, which can be reached at: 1-888-221-1161. The repayment schedule for each loan varies, depending on what the borrower and trustee agree on, and put in the application form. We offer grace periods of up to 6 months for agriculture and start-up loans. Repayments can be weekly or monthly, whichever is most convenient for the borrower. The exact amount of each repayment may vary slightly (e.g. if the value of a 12 month loan does not divide exactly by 12), but for the most part, each repayment is an equal amount. The exact repayment schedule will not be finalized until the loan is fully funded. Once this happens, we communicate the repayment schedule to borrowers and trustees via email. Before repayments are due, we send email (or SMS, if the borrower prefers) reminders to borrowers and trustees, letting them know how much is due, when. If a repayment is missed, we send a notification of the delinquency. To make a repayment, the borrower should send the correct amount to paypalZip@kiva.org This repayment must come from the Paypal email the disbursal is sent to

More resources The Kiva Zip team can provide trustees with the following additional materials, if they would find them useful: Business plan template (both short and long version) Simple investment case calculator (i.e. will the investment the borrower makes with the loan generate enough profit to enable them to pay the loan back?) Borrower personal budget template Link to website for calculating a borrower’s debt-to-income ratio Link to website for a borrower to obtain their free annual credit score Recommended checklist for trustees to work through for each borrower they endorse We also have a team of people dedicated to answering any questions you have in the onboarding process, or subsequently

Contents Introduction to Kiva and Kiva Zip The role of trustees Borrowers and loans A couple of cool product features Conversations Borrower and trustee badges

Conversations (i) One of the most exciting things about Kiva Zip is that borrowers, lenders and trustees can all interact with each other, directly on the borrower’s loan page. The forum for doing this is on Zip is called ‘Conversations’. We are seeing many potential benefits of Conversations for borrowers: Simple messages of support New customers and ‘brand ambassadors’ “This world needs more artists, writers and in general, creative people :) Good luck with your project.” “Best of luck, Laurie! So proud of you and Catapult.” “Seth, You are my first Zip loan and I bought a couple of the 5 hands shirts for me and my girlfriend yesterday to wear. Hopefully we'll get some questions about the shirts! Good luck!” “I am sending your webside link to a couple of friends I have in San FRancisco. I will also put it on my FB page. Who knows it might help. Good luck!”

Conversations (ii) Potential benefits of Conversations for borrowers (continued): Networking and business advice Publicity and PR “guni, i am excited to partner with you! i set up a solar array for a water pump in a small village not far from lake victoria. my advice: be very sure you have properly grounded the system (an electrician can help) so that you are protected from lightening strikes. we lost two control boards on our system back n 2009. a few improvements, and we have been running fine since then. keep up your great work, and please contact me with further details of your project. best, dan. (ps, i note that you have almost reached your funding gal: super! i am going to boost my loan and provide you with the remainder you need... lets see what happens when your 'dream' becomes a reality! go for it!)” “Hey Seth, My name is Mel Umbarger, and I saw that you are a HPU grad. We would love to talk to you for a story in the Greensboro News & Record. Would you mind emailing me so we can get in contact? melissa.umbarger (at) news-record (dot) com.” We encourage all trustees to use the Conversations feature, to promote interaction and connectedness on the Zip website

Conversations (iii) Some screenshots of Conversations are below:

Trustee and Borrower badges We recently launched badges on Kiva Zip, whereby trustees and borrowers can obtain bronze, silver and gold badges by completing certain actions The ‘Repayments’ badge can be earned by borrowers repaying loans on time And the ‘Connectedness’ badge can be earned by borrowers and trustees posting updates on their loans, and inviting their friends and family to become lenders on Kiva Zip We expect gold badges to result in faster funding speeds for borrowers, and in the future there will be rewards for gold badge borrowers and trustees (e.g. can access larger, more flexible loans; featured more prominently on the website, etc.) Both the borrower (Kyra) and the trustee (Centro Community Partners) have a gold connectedness badge

Further information To find out more about Kiva Zip, visit: Zip.Kiva.org Or email us at contactZip@Kiva.org Or Christina.Reif@fellows.kiva.org

US Trustee Training Manual