We have started a lending team with the purpose of lending money to enterprising people in their countries:
Footprints in the Sand
Here’s the background:
It’s Saturday morning, you’ve parked your car and you’re walking to the shops. You notice an elderly person rattling a tin for a well-known charity and you feel you should give them something. A pound, a couple of pounds, maybe even more because you know someone who died from that particular disease, or just in case you catch it yourself. Whatever you give it makes you feel better that you helped…..somehow.
Have you ever thought where that money really goes? Would it surprise you to know that much of it goes in administration expenses, even 5-star hotels and first class airfares…..oh and let’s not forget that it also gets gobbled up by mega-wealthy pharmaceutical companies trying to find a profitable new drug they can market to help manage a particular disease. Note that I wrote a ‘drug…to help manage’ and not a ‘drug…to cure’. There is a world of difference.
The kind nature of most humans is to give in order to help others. What if instead of giving money to those charities that ‘help’ tsunami victims, the starving in Africa or a country’s orphans (who probably only receive a tiny percentage of your donation anyway), you could lend money directly to deserving and enterprising people in other countries, and even have your funds returned to you? Think of it as a charitable investment.
In June’s newsletter I mentioned that I was looking into starting up a group operating under a more hands-on scheme of helping people out that would not necessarily cost us much. That vehicle has now been established.
Microfinance
Microfinance or microloans is a method where small loans can be provided to enterprising people in the world’s poorest communities. Instead of relying on hand-outs from established charities, microfinance helps farmers and small business men and women borrow money to:
● raise their family income
● build up their assets
● cushion themselves against external shocks
This group of low-income borrowers has traditionally been neglected by the banks although some found a way to source finance through co-operatives.
Although the concept of microfinance is not new, it was given a new lease of life in 2006 when economist and founder of the Grameem Bank Mohammad Yunus, was awarded the Nobel Peace Prize for providing microfinance to poor people as well as helping them establish creditworthiness and financial self-sufficiency.
His initiative showed how encouraging and facilitating enterprise with the support of microfinance could significantly raise the living standards of entire communities.
Under this new spotlight many banks and financial institutions decided that it was a great bandwagon to jump on and set up their own microfinance divisions to ‘green’ their image. They weren’t properly managed and microfinance became tarnished with a bad name when several of the loans defaulted. It turned out that because of negligible administration and on-site field support, some borrowers used the money to buy TV’s instead of the equipment they’d borrowed for!
Microfinance briefly explained
Click here and scroll down to see the 2:08 minute video
Kiva: the collective power of individuals
Independent non-banking groups have established themselves and are achieving impressive results. The group I have watched and followed is www.kiva.org based in San Francisco. Kiva was established in 2005 and remains a non-profit organisation.
The procedure is simple:
Choose a borrower – make a $25 loan – get repaid – repeat the process
In a nutshell, lenders like you and me send $25 (£15.50) or multiples thereof to Kiva. Kiva offers a list of approved borrowers from around the world who you can choose to lend your $25 to. You don’t have to choose the same borrowers as I do but you’re always welcome to contact me for advice or recommendations until you become more familiar with the system.
When the loan needed receives the required amount, the borrower is funded. The current average loan is just under US$384. When the loan is repaid, the investors get their $25 back. There’s no interest involved, just the amount you loaned. You can either keep your $25 or lend it out again. The current repayment rate is 98.78%, far higher than in any bank I worked in! This is because Kiva has unpaid volunteer field partners that help the borrower for the duration of the loan. For every $1 loaned, 100% goes to the borrower. Kiva offset their costs by relying on small optional donations from you and others to keep our site running. For example on the $25 loans I have given, an optional donation of $3.25 is added. I pay that gladly.
Here’s a short video explaining how your $25 is applied:
click to see video (1:35)
Footprints In The Sand
If you’d like to just do something to contribute to this cause you can register with the Footprints In The Sand group to contribute or even set up your own lending group.
My reasons for investing:
I have worked in and visited many countries around the world – especially in Asia. The farmers, the taxi drivers, the fishermen, the street sellers - men and women of every age have to work long hours every day of the week just to survive; just to feed their families. And with the global economy teetering, survival for these people is becoming harder and harder.
We are all on this planet together. To put aside the cost of a small round of drinks to give people in genuinely distressed conditions a chance and know that they will receive it, is far more effective than giving someone with a tin outside a shopping centre on a Saturday morning a few pounds.
Click below to see what Kiva are offering:
Footprints in the Sand
- Click on the link
- Click on Join Team’
- Click on New to Kiva? Register
- Fill in the blanks
- Choose a borrower
Just to give you an idea, today (16th July 2011) I have contributed to loans for those below:
- $25 to Rahmattilo Muratov in Tajikistan to help with his agricultural
- $25 to Julius M'irura in Kenya to help cultivate his banana farm
- $25 to Anonymous in Sierra Leone to help her fund provisions for her store
“Don't be afraid that your life will end,
be afraid that it will never begin!" ANONYMOUS
Graeme Dinnen