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Borrowing and Receiving
Micro lending and -loans means helping small businesses and eliminating poverty
By Jessie Knadler
Published: Dec 01, 2007
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Twenty-five dollars won’t buy a decent pair of shoes in this country, but it’s enough to help jump-start a business in poor countries like Bangladesh, Mozambique and Cambodia.
That’s the idea behind microlending, a system aimed at easing poverty while galvanizing entrepreneurship in the developing world. And it’s been gaining since Grameen Bank of Bangladesh founder Muhammad Yunus won the Nobel Peace Prize for his work in microcredit in 2006. It works like this: A lender provides a small amount of money to a small business owner and/or entrepreneur who otherwise has limited access to traditional lending institutions (it’s difficult to secure a bank loan when you have no credit history or your only collateral is a goat). The money is used by the borrower to buy more inventory, invest in better equipment and machinery, and generally lay the foundation for building a profitable business. The result: the business is allowed to grow while the struggle for daily subsistence begins to lessen. Borrowers can begin to plan for the future and eventually work their way out of poverty for good.
Women in particular have benefited from microloans since they’re the ones most likely to live in extreme poverty. Access to capital raises women's living conditions and status within their own families and communities.
It’s worth pointing out that most microloans are not charity (i.e. not a tax deduction) but funds that are repaid within a certain time frame (usually between 6-12 months). This is not only good business for the entrepreneurs, but worldwide, these loans generate repayment rates of 97 percent, according to United Nations Capital Development Fund, making them a relatively safe bet for the lender. Unlike conventional loans, most microloans are not repaid with interest (as this would defeat the purpose of alleviating poverty).
One of the more well regarded microloan operations is Kiva.org, a non-profit organization started by two Americans, that links up interested lenders directly with borrowers from all across the globe. You browse borrower profiles — see a photo, read business proposals and credit history — before selecting an investment that interests you, whether it’s helping a shop owner expand her inventory in Peru, or a single mom run a retail store in Guatemala. The loan, which is paid for via credit card or PayPal, is transferred to a vetted Kiva affiliate in that particular country who disburses 100 percent of the investment to the borrower. The affiliate collects repayments over the course of the year while posting updates at Kiva.org.
If you’d rather invest closer to home, Accion USA (Accionusa.org), a subsidiary of microlending giant Accion International, offers small business loans ranging from $500 to $25,000 and education programs to low and moderate income entrepreneurs in the United States. In this case, Accion USA accepts a donation from you — you don’t necessarily have a say where it goes — which is invested for you in businesses owner by low to moderate income entrepreneurs nationwide.
There’s also Global Giving, a site started by ex-World Bankers in which potential lenders select from a variety of projects or locations that interest them. The donation is tax-deductible. Ten percent of it goes toward operating costs, which includes regular in depth updates on your investment.
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That’s the idea behind microlending, a system aimed at easing poverty while galvanizing entrepreneurship in the developing world. And it’s been gaining since Grameen Bank of Bangladesh founder Muhammad Yunus won the Nobel Peace Prize for his work in microcredit in 2006. It works like this: A lender provides a small amount of money to a small business owner and/or entrepreneur who otherwise has limited access to traditional lending institutions (it’s difficult to secure a bank loan when you have no credit history or your only collateral is a goat). The money is used by the borrower to buy more inventory, invest in better equipment and machinery, and generally lay the foundation for building a profitable business. The result: the business is allowed to grow while the struggle for daily subsistence begins to lessen. Borrowers can begin to plan for the future and eventually work their way out of poverty for good.
Women in particular have benefited from microloans since they’re the ones most likely to live in extreme poverty. Access to capital raises women's living conditions and status within their own families and communities.
It’s worth pointing out that most microloans are not charity (i.e. not a tax deduction) but funds that are repaid within a certain time frame (usually between 6-12 months). This is not only good business for the entrepreneurs, but worldwide, these loans generate repayment rates of 97 percent, according to United Nations Capital Development Fund, making them a relatively safe bet for the lender. Unlike conventional loans, most microloans are not repaid with interest (as this would defeat the purpose of alleviating poverty).
One of the more well regarded microloan operations is Kiva.org, a non-profit organization started by two Americans, that links up interested lenders directly with borrowers from all across the globe. You browse borrower profiles — see a photo, read business proposals and credit history — before selecting an investment that interests you, whether it’s helping a shop owner expand her inventory in Peru, or a single mom run a retail store in Guatemala. The loan, which is paid for via credit card or PayPal, is transferred to a vetted Kiva affiliate in that particular country who disburses 100 percent of the investment to the borrower. The affiliate collects repayments over the course of the year while posting updates at Kiva.org.
If you’d rather invest closer to home, Accion USA (Accionusa.org), a subsidiary of microlending giant Accion International, offers small business loans ranging from $500 to $25,000 and education programs to low and moderate income entrepreneurs in the United States. In this case, Accion USA accepts a donation from you — you don’t necessarily have a say where it goes — which is invested for you in businesses owner by low to moderate income entrepreneurs nationwide.
There’s also Global Giving, a site started by ex-World Bankers in which potential lenders select from a variety of projects or locations that interest them. The donation is tax-deductible. Ten percent of it goes toward operating costs, which includes regular in depth updates on your investment.
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