Tuesday, February 27, 2007

Micro Loans: Making a Big Difference with a Little Money

It's hard enough to get a loan in the United States if your credit is less than perfect. People in developing countries face a steep uphill battle because money is tight for everyone. Micro loans are an idea that has gained some traction of late. I love the idea of helping entrepreneurs out especially since they create so many jobs in this country. Whether it is the guys at Google, Intel, or eBay, many famous American companies were founded by immigrants.

While micro loans aren't a good investment as far as monetary return, they may pay for themselves in feel-good value. The idea is simple, you loan a small amount of money (as little as $25) to someone and other people do too. A micro loan is less than $1,000 typically and made up of many very small donors. There are sites that allow average Joe's from the U.S. who are up to their eyeballs in credit card debt accept micro loans, but I prefer the international ones. Why? Well, giving someone $25 toward the $400 they need to start a coffee, banana, or clothing business has bigger bang-for-your-buck than the same would for a person over in the states. Additionally, credit is (relatively) cheap in the states and companies are flush with cash willing to throw it at anyone - especially those people who know how to use it the least.

Anyways, I was looking over a site last night called Kiva.org that matches up people in developing countries with investors looking to PayPal at least $25 to their venture. There are bio's of everyone who is looking for a loan and they have local people on the ground that direct funds and make sure you get updates on the status of the business. They site claims that right now there is a 100% payback rate, but these loans are NOT guaranteed obviously and will not pay you interest. So, if you are looking to make money look elsewhere. The site charges recipients 2% interest to cover transaction costs like the website, local lenders, PayPal fees, and keeps the recipients honest.

I'm thinking about putting in $25 since I don't have much excess in the budget. If it ends up as a loss I can weather losing $25. Hmm, the guy looking to start a video game hangout for kids in Nicaragua or the woman who is looking to buy organic fertilizers in the Samoa to grow fruit. If anyone has experience using Kiva or other sites let me know, I'd like to hear what your experience was like.