Breaking the Mold . . . and Maybe the Rules
— SVMN Speaker Event recap written by Cindy Law
“The only way we can [eradicate poverty] is if we do things differently than what we have done historically . . . we need to think in a new way and create new patterns.” – MCY4 Founder Mads Kjaer
“Breaking Mold… and Maybe the Rules” featured MYC4 Founder Mads Kjaer and Kiva.org Co-Founder Matt Flannery, whose organizations provide two innovative and complementary peer-to-peer lending platforms. Kjaer and Flannery illuminated the broader regulatory environment shaping their work and its implications on the legal and financial structures of their respective organizations.
Kjaer introduced MYC4 as an 18-month old organization that has already amassed 15,000 investors from 90 countries to provide a $10 million loan portfolio. Kjaer discussed MYC4’s innovation in returning interest to users at an average rate of 13% and how the organization is building transparency in its online marketplace for loans, including disclosing transaction costs and country-specific tax rates on earned income. Kjaer provided a live demonstration of MYC4’s online platform and the application of the Dutch Auction, a bidding process around which the MYC4 process is based.
Flannery shared the story of Kiva’s origination and rapid progression from a vision for friends to a widely successful venture whose lender demand has historically outstripped the organization’s supply of loans to fund. Flannery discussed how due to legal obstacles, Kiva – which initially considered an interest-generating loan model comparable to that of MYC4 – pursued 501(c)(3) status and ultimately changed its thinking around its revenue model. Whereas MYC4 generates revenue from fees collected on each loan, Kiva’s revenue primarily stems from lender monetization and interest from cash flows.
From a risk perspective, financial and commercial risk lie with investors for both organizations; however, MYC4 and Kiva have developed distinct legal models and approaches to managing insolvency among borrowers and field partners. In Kiva’s case, Flannery and General Counsel Austin Choi explained the organization’s role as an intermediary on behalf of individual lenders. By maintaining a contract with each MFI partner, Kiva is able to reduce person-to-person transaction costs for lenders. In contrast, MYC4’s contracts are held by individual investors who hold the legal rights and responsibilities to each loan.
SVMN Board Member Sean Foote moderated the panel and Q&A session.