Get what you give
Home » Magazine » Good, issue 1 » The goods » Get what you giveGive to charity, and you get a warm fuzzy feeling, perhaps even a tax rebate. But what if all of the money you gave away came back to you? Welcome to microlending
You’re getting to be a pro at this ethical living business: you put on a hoodie before the heater, you’ve stopped driving to the dairy, you’re selling your old gear on Trade Me instead of chucking it out. Not only are you reducing your impact on the planet, all this smart living is saving you money. Now what about taking some of that cash and helping someone else better their lives?
Microlending is a new way of providing financial assistance to people in developing countries. Microlending encourages sustainable development and, unlike charity, it’s a two-way street.
It works like this: you lend a small amount of money to a local entrepreneur. They use the loan to help their business, which then helps create employment in their community. And here’s the best part: when the borrower repays the loan, you get your money back. You can lend the same amount over and over again, making a very small amount of money go a very long way towards helping people who really need it.
Why microlending?
The very poor are often ignored by traditional banking institutions; they don’t have access to collateral to secure loans, and the amounts of money needed are so tiny that for most banks it’s just not worth the hassle. Microlending was pioneered by specialist banks (see box), but grassroots groups are now operating all over the world. This is where you get involved.
Increasing numbers of organisations aim to match up willing donors with people needing investment. Most accessible of these is Kiva, whose website lists a huge number of businesspeople in developing countries who need capital investment. Gulmahmad Uldoshev, a farmer in Tajikistan, needs to raise US$875 to buy potato seeds and fertiliser for his farm. Germania Orozco Sebastian is asking for a loan of US$575 to buy new machines for her video game rental business.
When you find a project you like the look of, you can loan anything from US$25 towards the target amount. Pay online using your credit card, via PayPal, and you’ll soon start getting regular updates on how your borrower is getting on. Once the entire loan’s been paid back you can either withdraw your share of the funds, or loan again to someone else.
Of the 44,500 loans funded so far (worth US$30,596,360) 99.73% have been repaid. Kiva works with 89 microfinance groups in 42 countries; you can check out each group’s credentials (including, crucially, how good they are at getting loans repaid) on the Kiva website.
Microlending can play a role in rich countries, too. US website Prosper, the UK’s Zopa and New Zealand’s own soon-to-launch Nexx look more like traditional banks, with credit scoring systems and collection agencies on hand to chase defaulters, but the principle’s the same: small amounts of money go to people who need it. This peer-to-peer ‘social lending’ allows lenders and borrowers to agree their own terms, including interest. Since it’s a direct transaction between two people, the rates are often much better than the bank’s—for both parties.
Let’s get one thing clear: microlending won’t solve world poverty. Some say the very poorest people are still missing out; not everyone’s a born entrepreneur and it’s hard to get a business plan together if you’re struggling to get enough to eat. Kiva admits that where regions are ravaged by war, famine or disease, microlending really isn’t the answer.
But unlike the vast majority of charity donations, microlending lets you see your money making a real difference to someone’s life. You can help people build businesses that will help their communities, and their countries, find a way out of poverty—and it’s unlikely to cost you a cent.
Sat August 30, 2008 @ 09:43 PM
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