Michael Bernick
Adjunct Fellow; Counsel to Duane Morris LLP; former Director, California Employment Development Department California, Human Capital, Labor
California and Human Capital and Labor
Michael Bernick, the former director of the California labor department, the Employment Development Department (EDD), joined the Milken Institute in February 2004, as a research fellow, focusing on job creation and workforce development projects.
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Kiva and the micro-lending boom in California

By: Michael Bernick
November 01, 2012

California is in the midst of a micro-lending boom, driven by the rise of internet-based micro-lending sites, including Kiva, Kickstarter, Indiegogo, and RocketHub.

The micro lending sites are opening new lending markets in peer to peer lending. They are building new ties between lenders and California micro-businesses, with the lender more of a business development partner than a passive provider of funds.

Micro-lending for years has long been an economic development strategy of community training and economic development agencies in California. In the old days of micro-lending -- that is pre-early 2000s -- micro-lending consisted often of private foundations or wealthy private individuals providing funds for nonprofit intermediaries to disperse.

In 1984, the community training agency I headed, San Francisco Renaissance, started a Renaissance Entrepreneurship Center, which included an entrepreneurship training class and a small loan fund for micro-enterprises. The Center in the late 1980s and 1990s expanded greatly in businesses served, training and locations, thanks to Ms. Claudia Viek, a decades-long leader of the micro-lending movement in California and the current director of the California Association for Microenterprise Opportunity. But even the Renaissance Entrepreneurship Center, which continues to operate, has depended on a relatively small group of lenders and foundations.

Now the micro-lending sites expand the pool of lenders to include individuals of all income levels and also expand the role of the lender. Kiva, based in San Francisco, has been a leader in such lending to business enterprises and illustrates the micro-lending boom in our state.

Kiva started in 2005, with a focus on loans to entrepreneurs in developing countries. In the past seven years, Kiva has facilitated an astonishing 842,068 loans, totaling over $368 million in 66 countries. The lender can put in as little as $25 and then chooses the borrower, based on information provided by Kiva field partners and volunteers around the world. Though the loan is administered by an intermediary financial institution, the lender follows the loan repayment and progress of the business -- all made possible by internet technology.

In recent years, Kiva has become more active with loan making in the United States. Since 2009, when Kiva launched its United States operations, Kiva has made 140 loans in California. (700 in the United States). To expand its United States presence and especially its California presence, Kiva late last year started KivaZip, which eliminates the intermediary institution and can operate with even greater speed and nimbleness.

KivaZip is headed by Jonnie Price. Price is involved in a number of loans himself as a lender, as are many Kiva employees. He is a graduate of Cambridge University, and came to Kiva in 2009 as a volunteer after six years at Oliver Wyman, a management consulting firm.

Recently, I joined representatives of the City of Antioch and Contra Costa Small Business Development Center in a meeting with Price at the Kiva headquarters on Howard Street. The Antioch City government is aggressively pursuing lending strategies to assist Antioch-based businesses.

By the end of the 90 minute meeting, Price and the Antioch representatives had a tentative agreement to start a KivaZip program in Antioch within two months. No extensive paperwork, no attorneys drafting/redrafting documents, completely a letaEUR(TM)s- move-forward approach. What a contrast with most government programs. (A recent Milken Institute paper by Bradley Belt, Chris Brummer and Daniel Gorfine, "Crowdfunding: Maximizing the Promise and Minimizing the Peril", examines securities issues regarding crowdfunding sites like Kiva that eschew most paperwork, and suggests how they can continue to function and expand lending, without onerous regulations.)

Whether a KivaZip lending for Antioch micro businesses will take off in the next few years remains to be determined. It starts off, though, with the access to the Kiva list of users, which now total 1.2 million, including 60,000 in California.

Much is written about how technology is eliminating jobs in California. The micro-lending internet site is one example of how technology is creating jobs in our state.

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