Can a cow beat the Dow? Measuring the financial impact of a Kiva loan

In December 2007, two things happened almost simultaneously:

1.) I enrolled in a Finance and Applied Mathematics dual-degree program at the University of Auckland and;

2.) Financial markets all over the world crashed overnight

This naturally meant that my entire tertiary education revolved around the recession. I spent many nights using the benefit of hindsight to build financial models that could’ve predicted the timing of America’s housing bubble burst. For one of my favourite courses, we had to perform investment analysis and research before picking a ten-stock portfolio on Google Finance to track over the course of the semester - grades dependent on how well our portfolios performed against the plummeting Dow Jones Industrial Average.

If you would’ve told me then, that nine years in the future, I would be in Kyrgyzstan, building a financial model to help microfinanced rural entrepreneurs maximise profits based on livestock portfolios and optimal reinvestment decisions, I would’ve said three things:

1.) Where is Kyrgyzstan?

2.) What is microfinance?

3.) Can I use your time machine?

Over the last month, I have been travelling all over Kyrgyzstan as a Kiva Fellow to meet Kiva borrowers who are clients of Bai Tushum Bank, a Kiva Field Partner. My travels have taken me to the homes of 14 borrowers in six out of the seven regions of Kyrgyzstan. Twelve of those borrowers were adorable Kyrgyz grandma’s working hard to develop their livestock business - a ratio that accurately reflects Bai Tushum’s Kiva borrower mix - hop onto their fundraising page and see for yourself!

The more I spoke to the borrowers, the more I realised that the livestock business in Kyrgyzstan has potential to be extremely profitable. My suspicions were confirmed when I met a software engineer that had just bought land to start a livestock business on the side himself - “there is a lot of money in this business here - the grass in Kyrgyzstan is premium and it is free in the mountains”, he said.

There aren’t many industries that measure success by an increase in the number of clients that don’t need their services anymore - microfinance is one of those industries.

The potential return on investment for a Kiva borrower in Kyrgyzstan was clearly very high, but somehow, the borrowers I met were unable to work their way of out debt-financed operations and into equity financed operations - the true goal of microfinance , in my opinion.


During my borrower visits, I found myself asking each borrower the same set of questions:

-How much does a cow, a goat and a sheep cost to purchase?
- What costs are involved in finding the seller?
- How much does it cost to fatten them up for resale?
- How long does that take?
- What is your Kiva loan term?
- How much interest are you paying on your Kiva loan?
- Do you sell all your livestock at the end of the “fattening season”?
- What do you use the profits for?
- What other sources of income do you have?
- What costs are involved in finding the buyer for resale?
- Do you use the cows for milk & cheese sales? If so, how long is the cow productive?
- How much do you sell milk & cheese for? Are travel costs involved in selling this?
- How much do you resell your cow, goat and sheep for at the end of “fattening season”?
- Do you breed any of the livestock?

As the wheels turned in my head, I grew curious - could a cow beat the Dow?

Before I reveal the answer based on my findings, it is important to understand how the livestock business works for a Kiva borrower in Kyrgyzstan. So, in the universal language of Emoji’s - here is the business cycle of a typical Kiva borrower in Kyrgyzstan (let's call her Zamira) who borrows $2,000 USD for a 12 month loan term:

After taking into account the appropriate risk factors, interest rate, exchange rate fluctuations, inflation, etc - this is what my financial model told me:

Your Kiva loan to a borrower in Kyrgyzstan is not only giving them access to capital - it is also giving them access to a 30.1% return on their investment! When compared to some of the worlds most prominent indexes over the last two years, your Kiva loan has a financial impact that provides borrowers with a return on investment 11 times more than the Dow Jones Industrial Average, 9 times more than the S&P 500, 7 times more than NASDAQ!

Furthermore, with a few simple reinvestment decisions and business planning, Kiva borrowers in Kyrgyzstan can earn up to a 78% return when they invest their Kiva loan into the livestock business! Over the next couple of weeks, I will be sharing my “Can a cow beat the Dow” financial model with Bai Tushum staff and exploring opportunities to provide Kiva borrowers with some simple business tips that could help them maximise profits and tap into the potential of this lucrative industry!

I am excited and hopeful that repeated Kiva loans from Kyrgyzstan will decrease in the future and all the hardworking, gracious and inspiring grandma entrepreneurs will be so successful that they will not need Kiva anymore! Just to give you an idea of how wonderful my borrower visits have been, here are a few of my favourite moments: