Wednesday, December 05, 2007

Microfinance For Profit

[First, allow me to apologize for the dearth of posts lately. My department has been immersed in two job searches which has consumed vast amounts of time. I plan to be back to normal blogging from now on.]

A while back, I blogged about Kiva, a microfinance organization that allows people to become directly and personally involved in development by loaning money to individuals in the developing world who need capital to start or improve their business ventures. So far, I've loaned money to two people and plan to loan again soon. In response to my post, a certain libertarian, capitalist, free-market friend of mine (who shall remain nameless) replied (and I paraphrase here) "Piffle. Why should I loan people money if I'm not getting the interest? The loan recipient is still paying interest which someone is getting. Why shouldn't it be me?"

Well, now it can be. A new for-profit microfinance organization has sprung up. Owned by eBay, Microplace combines the development aspect of Kiva with the for-profit motive. An individual invests money (a minimum of $100) by purchasing securities from a security issuer, who guarantees the interest and principal payments. The security issuer then loans the money to lending organizations in specific countries, which then loan the money to borrowers, who use the money for their businesses. The borrower then repays the lending organization, which repay the security issuers, which repay the investors. Depending on the area one wishes to direct one's investments towards, Microplace promises returns of 1-3%. Check out Microplace's "Learn More" page for more information about how Microplace works or about microfinance in general.

It will be interesting to see which business model wins out. Kiva doesn't provide returns on the money loaned, but it also allows individuals to loan on a smaller scale (the minimum loan on Kiva is $25). Microplace is slightly less personal as, although you can see the individuals who receive loans from the lending organizations, you don't choose the specific individuals to whom you want to loan money. But, it does provide a return. My gut tells me Kiva will be more successful, as, my friend notwithstanding, most people are a bit queasy about mixing their humanitarian philanthropy with profit. But either way, both Kiva and Microplace are excellent ways for people to have a direct and meaningful impact on ending poverty and improving the lives of people all around the world.


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