When an individual gets a loan, the village itself is sort of "co-signing" it. If the person defaults or runs away, the entire village's "credit score" is affected.

This is not theory: Millions of loans were granted worldwide, and in fact the default rate is actually lower than traditional banks in developed countries.

Note: My comments above are about microcredit in general, and not specifically about Kiva (which I don't know much about it)