Wednesday, May 4, 2011

Every Little Bit Helps

I just lent $25 to a woman starting a construction supply company in Uganda.

Last year I lent $25 to a widow running her own clothing store in Ukraine.

Before that I lent $25 to a young seamstress in Tajikistan.

It's the same $25.

I got into micro lending when I was finishing up University. I was feeling a little beat down at school, and I didn't really feel like I was making a difference in anything I did. In my web wanderings I came across an article talking about micro loans and how they were being used by young entrepreneurs, and others who didn't qualify for traditional loans, to start businesses and pull their families out of poverty.

That counted as making a difference for me.

So I signed up with Kiva, an organization that makes micro loans all over the world. I set up my profile, put $25 into my account with them using my credit card, and then picked out someone to lend the money to. That was that. I'd get e-mails periodically telling me that part of the loan had been repaid, and one at the end saying that my donation had been repaid in full and could be lent to someone else. At this point I could have the money returned to my credit card, or I could lend it out again to someone else. I've always lent it out.

There is a lot more information on the website now than there was when I started. When you click on a borrower's site there is information on who they are, what they want the money for, how much they're asking for, what percentage has been funded already, the organization lending the money locally, the delinquency rate, the default rate, whether or not it's insured, the repayment schedule... you name it. It even shows who else is lending. The woman I lent to recently requested a loan for $100. She received $25 from Turkey, Luxembourg, Netherlands and Canada.

The organization itself doesn't do the lending to the people. They work with local financial institutions in various countries, serving as a financial backer for the institutions to make the loans to others. As the money is repaid to the bank, the bank returns the money to the organization. There is always a risk that the loan won't be repaid, but the repayment rates on these loans are sky high. Small borrowers don't want to mess with the system, and there is a lot of pride tied to repaying these loans.

The organization requests that you make a donation to them to cover their operating costs, but it isn't mandatory. When you lend to someone, you go through a checkout showing your total like you would see buying a pair of shoes online. The organization tacks on a 15% donation line item here. You have a choice of paying it, modifying the amount, or opting out of the donation.

Anyway, I was thrilled to get involved with micro lending, and I figured there might be some like minded people reading this interested in doing the same. Props to Premal Shah for getting the ball rolling.

Has anyone else gotten into micro lending?


Don said...

Microfinance is an interesting area. The real challenge is the high transaction costs (i.e. in this case Kiva subsidizes operations through donations), difficulty in collections / fraud potential and currency risk.

Probably with $25 bucks you could just consider it a donation if you lost the money, but you wouldn't want to lose several thousand that way.

Nice thing about microfinance is the borrowers get away from high interest rates. You should consider microfinancing your credit card and line of credit debt ;).

Cassie said...

Lol, I'd love to microfinance my debts to get a lower interest rate, but I'm not sure that people would freely donate to the cause of "I was dumb, now I'm digging my way out - help me"

savingfortravel said...

I looked into it a few years ago when it was new, but the loans always snapped up quick so I never ended up lending anything.

Thanks for the reminder! it looks like there's a lot more loans then there used to be.

Cassie said...

Yeah, there are lots of opportunities to lend right now. I figured I wasn't the only one who had looked into it and there were others that were interested.

I need reminders too, which is why I like their e-mails!