CHARITY FOR CAPITALISTS:

A Good Run for Your Money: What's the best way to loan a poor entrepreneur $20? (Jude Stewart, March 15, 2007, Slate)

Since my charity bucks are limited and divvying them up isn't ideal, I'm aiming for a tight sweet spot: a small donation with real bang for the buck. When I read about microcredit--the practice of making tiny loans to poor people in the developing world so that they can start businesses and break out of poverty--it piqued my interest. And when the Grameen Bank of Bangladesh and its founder, Muhammad Yunus, won the 2006 Nobel Peace Prize for pioneering microcredit work, I was hooked. As an entrepreneur, I dig the idea of helping another jump-start her kitchen-supply business in Ghana. It also eliminates that pointless drop-in-a-bucket feeling to know this specific woman couldn't open her tamale stand without my $20--let alone the fact that when the loan is repaid, that $20 can get reinvested into another success story. (Truly the gift that keeps on giving.) Question is: Which microlenders cater to individual donors? And which is the most satisfying place to sink my dime? [...]

Kiva

Finally: microlending as I'd imagined it. Kiva (agreement or unity in Swahili) lets lenders choose from individual borrowers, who are vetted internationally by local microlenders. Started as a side project in 2004 by a married couple, neither the lender nor Kiva takes a cut of the interest, saving it all for the local lender to administer to the borrowers day-to-day.

The organization gets strong marks for both usability and payment options (all credit cards, plus PayPal); you can fund loans partially, although the minimum payment is $25. I funded Madam Elizabeth Lomotey in her kitchen-supply business in Ghana and was surprised to see pictures of my fellow lenders next to mine.

Kiva's weakness is the cursory business-plan descriptions: You're really trusting the judgment of the local lender more than the plan itself. I can overlook this, though, given the high number of descriptions local lenders seem to have to write on behalf of the borrowers. Other perks? You're alerted via e-mail every time another loan payment comes in, and it's fun to check back on your lender and review his or her journal entries. (Sadly, Madam Lomotey is a taciturn one; other borrowers and their local loan managers get more chatty.) All that's missing is information on the borrowers' previous loans, which could indicate an expanding business.

Kiva combines online community with microlending in a way that's truly exciting. It's remarkably compelling to see your borrower face to face--you can even contact them via their local lender rep. Given Kiva's shoestring budget, it's a strong start.

User Experience: 10
Trust: 8
Effectiveness: 12
Total: 30

Small loans and big ambitions: The commercialisation of microcredit and what stands in the way (The Economist, 3/15/07)

Commercialisation is changing microfinance--and stirring debate. Some believe microlenders have no business making money from the poor. In many countries various rules, like interest-rate caps, have been put in place to crimp the industry's growth. This is despite ample evidence that where there is healthy competition in microlending, as in Bosnia and Peru, interest rates tend to drop substantially.

Most experts in IFIs and elsewhere believe the for-profit sector must play a role. Microlenders that can attract commercial funds--deposits, loans, the capital markets--have the potential to become self-sustaining, rather than relying on the charitable instincts of others.

Socially responsible investors are already pouring in. And even the purely profit-minded have begun to open their wallets. According to a study of 200 microlenders by MIX, which collects data on the microfinance industry, commercial funding grew to $7.3 billion in 2005, from $4.9 billion two years before.

Posted by Orrin Judd at March 15, 2007 7:16 AM