June 5, 2007 -- In Kirkuk, a city in northern Iraq that wavers between war and unsteady peace, a woman named Khadeja runs a beauty shop in the poorest section of town. She needs $1,200 to keep her business going -- a business that supports her parents and disabled brother.
In Los Gatos, Calif., a real estate broker named Debby Bright is giving her a loan.
Separated by roughly 7,000 miles, Bright and Khadeja connected through Kiva, an online lending network which recently added Iraqis to its list of entrepreneurs in poor countries who are looking to build up a business.
On Kiva.org Bright and others like her log on, browse the pictures and profiles of small business owners and make micro loans -- usually $25 to $50 each -- with the click of a mouse.
Once the full value of the loan is collected, it's wired to a Kiva field partner in that country, who then delivers cash to the entrepreneur.
Khadeja gets her loan, and Bright gets to feel she made a difference.
"She's an entrepreneur and I'm an entrepreneur, and I know how important it is to have one's own business," Bright told ABC News. "I feel we as a nation owe something to these people."
Rebuilding Iraq -- One Loan at a Time
The first Iraq entrepreneurs to join this lending service went up on the Kiva Web site just two weeks ago. Photographs of their faces were blurred to protect their identities, and the requests were accompanied by this disclaimer: "This entrepreneur is from a volatile region where the security situation remains unsettled. Lenders to this business should be aware that this loan may represent a higher risk and accept this additional risk in making their loan."
Nevertheless, the Iraq postings sparked what seemed like a feeding frenzy online. Within a few hours all the loans were fully funded -- from the hair salon to a request for a new sewing machine and a request to rebuild a computer shop that had been burned to the ground in a terrorist attack.
"A lot of people had the same reaction I did, which was, 'This is my chance!'" said Christian Conti of Washington, D.C., who loaned $25 to a mobile phone shop owner in Kirkuk. "As someone who watches the news play out day to day … and all you hear is the negative news … you say, 'Man, I wish I could do something.'"
"Traditionally a business on Kiva gets funded in about a day and a half," CEO and co-founder Matt Flannery told ABC News. He noted that women business owners in Africa usually go the quickest, while Eastern European men take the longest time to get funded.
"Right now the Iraqis are going to quickest. I think they all got funded in half a day, which is the fastest sector on our site right now," Flannery added.
Some of the Americans who responded told ABC news the loans were their way of helping with Iraq's reconstruction, lifting an economy left in tatters by the U.S. invasion.
"I'm not able to save Iraq … but I am able to give $25 to support a woman and her tailoring business," said Glenda Denniston of Madison, Wis., who loaned money to both the computer store owner and the seamstress in Kirkuk.
The 'Two Martini Loan'
Many of the Kiva lenders say they are "addicted" to the Web site, checking it daily if not hourly to see what new countries and entrepreneurs have been posted.
Conti has loaned $25 to three dozen different entrepreneurs from Togo to Tanzania, Afghanistan to Iraq. He calls it his "two-martini loan."
"That's what it costs in D.C. for two martinis and instead someone in Tajikistan has two cows, is able to feed their family … that's an easy decision for me," said Conti.
And the small sums add up. In 20 months the San Francisco-based nonprofit has helped put more than $6 million into the hands of small business owners in 30 countries.
Kiva, which means "agreement" in Swahili, operates based on what's called social lending or person-to-person financing. The power of that method, according to Kiva CEO and co-founder Matt Flannery, lies in the personal connectivity felt on both sides of the transaction.
"I think the secret of Kiva's success is that it's a people-focused experience. People in America get to see where their dollars are going," said Flannery.
Sending a Message
In every country, Kiva has a field partner that deals directly with the entrepreneurs -- reviewing loan applications and delivering the cash. In Iraq, that partner is the Al-Aman Finance Center in Kirkuk, which is funded by a grant from USAID. Al-Aman chairman Waria Salhi says that the Kiva loans send a clear and powerful message to borrowers in Iraq.
"The message is 'Americans are not only the soldiers whom you see on Iraqi streets chasing bad guys. They are also good and hardworking people thousands of miles away and voluntarily willing to help you with their hard earned money,'" Salhi told ABC News in an e-mail.
"Lenders are not lending because they think of how the person is going to pay me back … they're lending because they think this person is the most in need," said Flannery.
So far, Kiva has an excellent track record for the repayment of loans.
Only one out of 9,000 borrowers has defaulted on a Kiva loan; all others have paid back or started to pay back their lenders. While the individual lenders on Kiva don't collect interest on their loan, the borrowers do pay interest to Kiva's field partners at a rate of roughly 13 percent to help cover their operating expenses. That's usually far less than the interest charged by banks or other institutions that are available to make loans.
Aside from the default rate, experts find there can be other risks with this operating model for loans. In particular, there is a risk that loan recipients are not honest or realistic about their plans for the money they receive.
"It's very hard to vet projects on the ground … and make sure they're capable of doing what they say they'll do with the money," said Ethan Zuckerman, a research fellow at Harvard's Berkman Center for Internet & Society.
"Kiva's done quite well with this so far, leveraging contacts on the ground. But it gets harder to do the larger you get," he said.
The Next Step
As Kiva looks to raise more money for an expanding group of small businesses around the world, there will likely be changes to its operating model.
To date Kiva's overhead expenses have been covered by donations and grants, but sometime this year the nonprofit will introduce a fee of 2 percent to local partners to sustain and scale up its work.
There are also plans to build out the Web infrastructure on Kiva.org to add rich content including more photos and soon, video of Kiva loan applicants in remote reaches of the world.
But for now, entrepreneurs like Khadeja in Kirkuk, are just happy that they received a loan. She is looking forward to hiring some extra workers and getting new equipment for her beauty shop with her thousand dollars from Kiva.
"I tell my donor thank you," Khadeja told ABC News through a translator. "It will change my life."