FIP 58: David Auerbach Interviews Premal Shah of Kiva

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Once again, David Auerbach takes the mic to find out from other social entrepreneurs how they go about making critical decisions. This week, Premal Shah of Kiva is David’s guest. Premal is President and Co-Founder of Kiva and is a long time friend and mentor of David. For the few who don’t know, Kiva is the world’s first online lending platform connecting online lenders to entrepreneurs across the globe. We’re honoured to have Premal on the show.

On this episode you’ll learn:

How Premal approached David when he was working at the Clinton Global Initiative, and how that first encounter contributed to an incredible chain of events that got Kiva on Oprah’s radar, and which gave Kiva the most impressive endorsement any organization could want.
We learn about Premal’s early life and the various insights on that journey that were motivating forces to him co-founding Kiva. One was working at PayPal for six years and seeing the unfolding opportunities of eCommerce. Another was how eBay, which was connecting two strangers to buy and sell items, was taking off worldwide.
Premal shares why he left PayPal to start Kiva, which he saw as a “can’t not do” idea.
David reflects that when the idea is so strong, and so “can’t not do”, doing it full time doesn’t seem risky at all. This insight has also been validated in David’s interview with Andrew Youn (FIP 56) and Lauren Russell Nkuranga (FIP 57).
David digs into how Kiva made the decision to offer 0% interest free loans instead of return seeking loans, which could have scaled Kiva much faster. Premal says “Scale for scale’s sake doesn’t necessarily mean impact”. Premal believes the major gap in the financing landscape is risk capital for social enterprises in the pioneer gap (see link below), who might be post-grant stage and pre-commercial.
He goes on to suggest that so-called impact investors seeking de-risked deals with 7% IRR are unwilling to invest in early-stage social enterprises. They made the loans 0% to position Kiva’s loans as over-performing donations not under-performing investments.
They formed this opinion over time. At the beginning, they simply wanted to build a website for a small group of people who wanted to invest in a small business on the other side of the world, without having to jump through many legal hoops that come with lending money for profit.
The framework they use at Kiva for evaluating big decisions is breadth x depth x duration. Breadth being number and types of businesses they invest in; depth being the level of impact the business is achieving with its solution i.e. the level of poverty they’re reaching with their product; duration being: can Kiva endure (or ‘sustainability’), and this last one relates to the decision on whether Kiva remains a purely philanthropic model or not, or something in between.
David digs into how Kiva made the decision to expand, which is a decision that every social enterprise faces at some point. Premal said they set out to determine whether the decision to expand into the US was growing the pie or dividing the pie. Since their research found that 2% of US philanthropy goes overseas, and they figured they were growing the users on Kiva, they might end up increasing the amount of philanthropy going overseas.
Premal mentions Jeff Bezos who refers to decisions as either one-way doors or two-way doors, in regards to decisions that you can’t go back on.
Most decisions can be made within predefined boundaries or frameworks, such as those given to portfolio managers which guide them in the decisions they’re permitted to make in their role. Other decisions are new and outside existing frameworks so need to be debated appropriately within the organization with the best available data at hand.
Premal admits to wishing he was more resolute in the past when making decisions and having the courage to say to those who disagree to feel they can leave if they’re not on board. But he feels it also helps to classify decisions as either one-way to two-way doors. Decisions that are part of an organization’s discovery are not final and can be validated by actual data. This compares to those that are ‘no going back’ type decisions, which are more difficult to make.
Premal recommends the book ’15 Commitments of Conscious Leadership’ to help you and colleagues get into the discovery mindset.
When there’s ambiguity in a decision, Premal suggests breaking the decision into smaller pieces. A big bet can be very costly, but if you break it into smaller parts, you can fail faster and cheaper.
In making decisions, the job of leaders is to get the team into the right mindset, referring to the mindset of discovery (in many cases) and getting away from the feeling that you have to be right.