A San Francisco based internet start up is shaking things up in the microfinance world. The non-profit organization called Kiva, which means “unity” in Swahili, allows individuals in developed countries to lend money online to those who struggle in developing parts of the world. And while there is no repayment guarantees, the default rate is well below 5 percent.

The minimum amount of money an individual in e.g. the U.S. can lend is $25. In December of 2006 the average hovered around $70. Those funds go to storekeepers, farmers, fishermen etc. in places all over Africa, Asia, and Latin America. Those who take out loans almost always pay them back, because they want to have an option of borrowing in the future. Higher loan needs can be met by multiple individuals, who in turn get to choose who they want to lend money to. It’s a win-win situation. The lender is able to grow his business, while people in the developed world have an opportunity to do something good by simply lending funds at a low risk.

Kiva acts as a non-profit intermediary, which relies on individual freedom, reliability, responsibility, goodwill, and entrepreneurship. No one is forced to give. Able business owners receive the support that they need and pay back their obligations. No big government programs are involved.

The founders of Kiva became inspired by the Nobel Peace Prize winner Muhammad Yunus, whom they heard speak while they were students at the Stanford Graduate School of Business. Today, their organization is being praised by such media outlets as the San Francisco Chronicle, The Wall Street Journal, National Public Radio, The New York Times, The Oprah Winfrey Show, PC Magazine, CNN, BBC, Time, BusinessWeek, Newsweek, PBS, Foreign Policy, and many more.

The founders received their first loan pledges at their wedding from their relatives. Since 2005 Kiva has raised over $12 million and continues growing, also thanks to support from individuals like Bill Clinton. This success story shows that economic development is best served by free, benevolent, and creative individuals, and not by state-sponsored programs.