Participate in Microfinance!

Microfinance got a real boost in the last few years thanks to Muhammad Yunus' Nobel Peace Prize win in 2006. It was a well deserved award for a man whose efforts have literally aided millions of people in their climb out of poverty.

Yunus, via Grameen Bank, was one of the pioneers of microcredits. Microcredits are very small loans made to poor entrepreneurs, who would otherwise be considered not loan-worthy by traditional banks. This money is usually used as capital by these entrepreneurs to start or expand their businesses, which in turn makes it possible for them to break out of poverty.

One of the coolest things about microcredits as a poverty alleviation tool is that it...
preserves the dignity of the borrowers. They are expected to pay back the money and its related charges just like anyone else. So the success of the entrepreneurs is attributed directly to their own efforts, and not to charity.

The virtues of microfinance and its success has left many people wondering how they can personally participate in the system and contribute to the entrepreneurs. To fill this gap, Matt and Jessica Flannery came up with Kiva.

Kiva is a microfinance platform which has partnered with existing microfinance institutions worldwide. The Kiva website lists entrepreneurs from around the world, and lets the lender (ie. you and me) choose the specific person they would like their funds to be channeled to. The money is sent to Kiva (via Paypal), and is then transferred to the microfinance institution which will disburse the the funds to the particular entrepreneur.

The entrepreneur then uses the newly injected capital for its stated purpose and (hopefully!) starts generating more revenue. They slowly repay the loan and interest over time. (Yes, they do pay interest to the microfinance institution. Otherwise the system would be unsustainable. Kiva, on the other hand, is a non-profit. So it does not receive any interest and lives on donations. The lenders do not receive any interest payments either.) When the capital is repaid by the entrepreneur, the lender can choose to loan it to another person or withdraw the amount. Kiva also sends the lenders periodic reports on how the chosen entrepreneur is doing.

Kiva has received endorsements from many high profile people, including Bill Clinton (video here) and Oprah Winfrey. It is currently enjoying a huge public response.

For those of us who have been waiting for an avenue to aid the global poverty eradication effort, here it is! What might be a small loan for us may help someone free themselves from poverty.

(For those of us in the US, Microplace exists as an alternative to Kiva. It uses a different model from Kiva, where you actually get to make returns on your investments, but you cant choose a specific entrepreneur to assist)