Microloans help stimulate the economy of second and third world countries in a few ways. Basically, instead of being a “Band-aid” fix to an economy in struggle by dumping money on a problem, you, the loaner, are helping to create successful commerce/economy in a country, and therefore self-sustainment. Creating an economy that creates food through farming, herding, and storefronts, is certainly more beneficial than the one time-giving of food.
Microfinance investing compared with sheer charity can be aptly compared to the old adage: “give a man to fish and you feed him for a day, but teach a man and you feed him for life.” The idea is that you lend small amounts, at a high interest rate, directly to entrepreneurs, stay on top of them to re-pay, nuture their business, and they will both pay the loan back and make their community more self-sufficient in the process.
Today the leader in Microfinance is that of Kiva.org. Both Kiva and Grameen have managed to have a less than 1% default rate to date. Through Kiva you can choose to loan to men or women, domestic or abroad, and in a range of fields from farming and herding, to home repair, education, store supplies, and in between.
I asked Kiva how they were different from charity, community managaer Laura piper got back to me:
When you make a microloan to a borrower on Kiva, your loans are not tax-deductible or considered a charitable contribution. Our hope is that all Kiva loans are repaid by the borrower so that you can use your funds to lend again if you wish. Once your loans are repaid, you can also choose to then donate your repayments to help support Kiva’s operating expenses, or withdraw them into a PayPal account and use them for other purposes.
Below is a great video featuring Kiva.org CEO Premal Shah giving a run down of kiva, mircrofinance, and specifically how it is not charity, but actual investing that betters the world.
Here are some Kiva stats, at the time of this writing, source, Kiva.org: