NO-INTEREST LOANS: Midway Between Donating and Investing

NO-INTEREST LOANS: Midway Between Donating and Investing

Kiva popularized the idea of microfinance by allowing ordinary people to make loans to micro-entrepreneurs around the world—for example, to help a farmer in Sri Lanka buy more goats. Recognizing that there was also a great need closer to home, Kiva began offering its microloans in the U.S.  The individuals lending money receive their principal back, but earn no  interest—a key distinction that avoids triggering securities laws. (Once a profit is earned, the transaction is considered a security).

This creates an interesting category that falls somewhere between donating and investing that is free of regulatory concerns.

Kiva’s latest offering is KivaZip— as in zip code. It does away with the financial intermediaries that sat between the lender and borrower in Kiva’s original process. Individuals can now browse funding requests and lend directly to entrepreneurs in their community. KivaZip launched in San Francisco and is rolling out to additional cities.

Other startups, such as Community Sourced Capital, are following suit. CSC, which started in Seattle but is expanding nationally, lets investors buy pieces of a local loan in $50 increments, what it “squares.”  Many squareholders recycle their principle payments right back into the community. In this way, it’s like a community line of credit. What a nice idea!


  • Support your community and build close connections to local business
  • Unlike a donation, you get your money back (or you can keep recycling it into more loans)



  • No financial return above repayment of the principal
  • Loans are unsecured and principal could be lost if the business hits hard times.