Monday, December 17, 2007

Kiva Updates (Good!) and Mexican Micro-Usury (Bad!)

Kiva, a no-interest non-profit vehicle for microfinancing the world's poor, has had a great year. It takes just a day for a vetted entrepreneur to be loaned enough capital to get started, or to expand. I frequently get emails reporting my loanee's repayments. Here's what they report in their holiday email:

Dear Kiva Friend,
Happy Holidays! We hope this finds you well.
Thank you for believing and participating in the movement to connect people through lending to alleviate poverty. Because of your support, 2007 has been an amazing year for Kiva: over 170,000 lenders like you have funded 25,000 entrepreneurs to date. That's more than $16 million in loans across 37 countries - and at this time last year, we had just crossed the $1 million mark! This explosive growth hasn't gone unnoticed - Bill Clinton, Oprah Winfrey and others have caught the Kiva bug, and enthusiasm continues to spread around the world.
I am reading Banker to the Poor, the autobiography of Muhammed Yunus, founder of the Grameen Bank and the inventor of microfinance, giving small loans to poor people lacking in collateral, to help their entrepreneurial activities. One overlooked fact is that the Grameen Bank does charge 20% interest, to be paid off in a year. That is comparable to credit card rates. The idea is that people borrow money for inventory, materials, or equipment which then allows them to multiply their income significantly, so that repaying the loan is manageable.
It has proven highly effective and the concept has been replicated all over the world.

That's the good news. Business Week reports the bad news that that now banks in unregulated countries have started to see extending credit to impoverished people as a growth industry; they do not provide education, support or training, and charge rates than in the United States would be illegal. Many of these loans are for consumer goods, not income generating activities. Walmart is opening up banks in Mexico where they will charge 85% interest - and that's a good deal, relatively. The Mexican banks are charging more like 100%, and prior to that loan sharks and pawnbrokers charged more like 300%. So beware of this, and don't let it tar responsible microfinance. Awhile back I plugged, which brokers interest-bearing loans, though only 2-3% for you. The regular interest rate is charged by the microfinance institution which provides the loan. I continue to love the elegance of microfinance. If you have some surplus, you can donate it, loan it at no interest, or loan it at low-interest, and help women work their way out of extreme poverty, feed and educate themselves, and even develop literacy skills.

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