If you feel like you can’t make a difference in the world, you are wrong. Microfinance provides banking services to the poor who cannot normally qualify. And helping the poor of the world in this way costs you relatively pennies.
These services usually involve such small amounts of money that the traditional bank considers them unimportant. But for people struggling to lift themselves out of poverty, any amount matters.
In the 1970s, economics professor Muhammad Yunus began visiting the poorest women in Jobra, Bangladesh. He discovered that they could only borrow from pawn shops at exorbitant interest.
Biggest asset: your job
Without loans, women could not buy bamboo to make goods for the market. After selling these goods and paying the high interest, the women had nothing left.
Yunus, who ultimately created and popularized the modern idea of ââmicrofinance, began lending to the poor out of his own pocket and went on to found the Grameen Bank. (In 2006, Grameen Bank and Yunus won the Nobel Peace Prize for creating a simple but revolutionary microcredit system.)
In 2003, Yunus addressed Stanford Business School to an audience including Matt Flannery and Jessica Jackley, who two years later co-founded the non-profit Kiva (âunitâ in Swahili) lending organization two years later.
Kiva helps reduce poverty in developing countries – as well as materialism in developed countries – and works with carefully selected field partners in 76 countries to manage loans.
Once Kiva collects enough money for a loan, the funds go to the partner in the field. During the loan, the entrepreneurs gradually repay the loan from the profits.
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As the refund accumulates, the money returns to a user’s account. Users then withdraw the funds or hand the money over to another entrepreneur.
Kiva holds the pricing and practices of field partners accountable. If a partner charges too much or complains about lending practices, Kiva finds other partners. Users also hold field partners accountable for providing honest loans to worthy borrowers.
Kiva accounts are free. Over 1.1 million users are Kiva lenders, each making an average of less than 20 loans, or roughly $ 479. The total value of loans through Kiva still exceeds $ 550 million.
Microfinance cannot solve all the poverty in the world. A loan to buy, raise and then sell a calf makes sense in many parts of the world. But if you live where gunmen steal your cow, microfinance doesn’t work. It also doesn’t work for families on the brink of famine: given the choice between feeding the calf and feeding her children, no mother preserves the investment in the calf.
The method makes the most sense for short term loans of less than two years, where a little cash can help grow the start of a good situation. Our first Kiva loan went to Jehiner, for example, a 26-year-old living with his parents in Chiclayo, Peru. He was driving a taxi but needed $ 725 (2,000 Peruvian soles) to fix his taxi.
Women & Money Transitions
Edpyme Alternativa, the partner in the field, loaned Jehiner the money. Kiva repaid this loan so that Alternativa could take out another loan elsewhere.
In about 10 days, Kiva found 29 users willing to donate $ 25 each. Jehiner had 14 months to repay. Thanks to the loan, he continued to earn a living.
In-depth personal stories help lenders see those in need of capital in the developing world as real people with real needs. Microfinance sometimes works wonders but only makes sense for borrowers with a means of repayment. It seems to work well; Kiva’s reimbursement rate is 98.95%.
Microfinance processing costs as much as the big banks, but the benefits are less. As a result, the fees and interest are higher than those of traditional loans. Kiva is trying to reduce these costs. Fees and optional donations help cover the running costs of the nonprofit and nothing comes directly from the loans.
There are several ways you can get involved in microfinance. With just $ 25, you can start lending money to entrepreneurs and give a gift certificate to someone who might be interested.
The interface of the Kiva website is intuitive and pleasant. You can search by multiple criteria to target a specific type of loan, as well as by gender, country, industry, popularity, or news. (You can also join our firm’s loan team.)
We all think a lot about how our money helps us. A drop of your savings can help others live a simple life.
ConseilIQ – @advice on Twitter – is a USA TODAY content partner providing financial news and commentary. Its content is produced independently of USA TODAY.