Help Impoverished Entrepreneurs With Loans
Thomas Gryta, Wall Street Journal Online, September 23, 2007
While Americans gave record sums to charity last year, some are finding that loaning their money can be altruistic as well. A number of programs enable people to dabble in "microfinance," which provides financial services to the poor, usually in developing countries. The basic idea is to make small, short-term "microloans" to impoverished entrepreneurs who don't otherwise have access to capital -- helping improve their businesses and therefore their lives.
Microfinance builds on the principal that teaching a man to fish is infinitely better than simply giving him fish. Recipients "already know how to fish, they just need a loan so they can buy a net," says Fiona Ramsey, spokeswoman for microloan facilitator Kiva.
Through Kiva, people can loan sums as small as $25 to individual entrepreneurs they select on kiva.org. Kiva works with local microfinance institutions that screen all applicants and it says the default rate has been only 0.2%. Interest goes to support those microfinance groups rather than to the lenders.
The personal connection to the borrower is a big reason for Kiva's popularity, as reflected in the $11.6 million in loans made through the program since November 2005, Ms. Ramsey says. For example, a person can join in a $500, 18-month loan to a farmer in Cambodia to buy more pigs and get email reports of the monthly repayments, which often provide details of the borrower's progress. Loans made through Kiva aren't tax-deductible because they aren't a charitable contribution. When a loan is repaid, the money can be either withdrawn or lent out again.
It's also possible to make deductible contributions to other microfinance organizations, which typically use the funds as loan capital (or give directly to Kiva, to support its operations). Many microfinance groups work by providing funds to a group of entrepreneurs who guarantee each other's loans, which helps maintain repayment rates.
Donations to Finca (www.villagebanking.org
) can be designated to a specific program as loan capital; otherwise the funds are used for both loan capital and program support.
Besides making loans, Opportunity International, at opportunity.org, provides savings accounts and low-cost life and farming insurance in 28 developing countries.
Acción International, at accion.org, expands the reach of microfinance by helping establish the self-sustaining local institutions that can make the loans themselves.