Microcredit is Sustaining the Future
I have become absolutely convinced that microfinance is the best way to eliminate extreme poverty in the third world. The traditional thinking in the developed world is that poor people are poor because they are lazy and illiterate. And, of course, credit in the developed world relies on the past performance of the borrower. Robert Frost put it this way: “A bank is a place that lends you an umbrella when the sun is shining and asks for it back when it begins to rain.”
The problem is that providers of traditional credit have for the most part assumed that people in the third world were poor because they brought it on themselves, and would be next to impossible to get them to repay a loan.
Fortunately this has been proven untrue, and in fact, the repayment rate for microloans has hovered around 98%, far greater than anywhere in the developed world. After the success of the Grameen Bank and Muhammad Yunus, thousands of microfinance organization have sprouted up and the industry is now evolving into one of the biggest anti-poverty movements ever.
One organization that has helped spur on the popularity and success of microcredit is Kiva.org. Essentially Kiva connects lenders with microfinance institutions all over the world and allow folks like you and me to partner together and provide a small loan to an entrepreneur in the third world.
I currently have two loans to Kiva borrowers and to give you an idea of what it’s like, here is one of their profiles:
Clarence Vincent Obuya is 24 years old. He lives at his parents’ residence in a sprawling slum neighborhood in the town of Mombasa. Despite being under his parents’ care, he is determined to make it on his own and be independent. He supplements his parents’ income using earnings from his water vending service that he runs within the slum residence. He began this business three years ago after being unable to find formal employment after he completed school. His activities include delivering the water in cans to the customers’ premises. He uses a wheel-cart to ferry the water cans from door to door. This service is quite essential in this slum area since the majorities of the residents do not have tap water at their premises, and have to purchase water from vendors. He saves some of his earnings and plans to enroll in college in future. He has a large number of clients who place orders for water delivery on a daily basis. His main problem in this business is that he has to hire the wheel-cart and this consumes his profit. He is therefore requesting a loan of $350 to assist him in purchasing his own wheel cart and more water cans.
Currently Kiva doesn’t pay any interest on your loans. However, keep in mind that microcredit in general doesn’t just provide a return ON your principal invested as well as the return OF your principal (sometimes). It also provided a third component of SOCIAL return.
If you are interested in making microcredit a part of your investment portfolio and require some type of financial return, then I would suggest checking out microplace.org, which connects lenders like us to microfinance funds that provide a return (usually between 1-3%).
As the industry evolves there will be plenty of opportunity to return more profits. This doesn’t mean that we become ‘mean greedy loan sharks’, but perhaps that we follow the entrepreneurs as they grow and offer them more financial services such as insurance, savings and investment services. Also, as small operations grow into medium sized enterprises and as entire villages get lifted out of poverty, opportunity for larger commercial loans, consumer products, etc. become available. And, most important, we eliminate poverty in the third world through the process.
This is one greener trend that you’ll want to keep up with. It is most certainly moving the world towards a sustainable future.
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