Micro-Financing In a Bad Economy

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The other day I came across a neat idea, that of micro-financing. The cool thing is that it provides for those too poor to borrow through regular channels, such as banks and lending institutions. When the economy is as bad as it is, there are a lot more people who do not qualify for conventional financing, since the banks have tightened up their criteria.

Kiva - loans that change lives

How I found out about it was through a website called Kiva (www.kiva.org), a non-profit that allows you to lend as little as $25 to a specific low-income entrepreneur anywhere in the world.

You choose who to lend to - whether a baker in Afghanistan, a goat herder in Uganda, a farmer in Peru, a restaurateur in Cambodia, or a tailor in Iraq - and as they repay their loan, you get your money back. It's a powerful and sustainable way to empower someone right now to lift themselves out of poverty.

This struck a chord in me immediately. I believe people need a hand up, not a hand out. I feel I am using my modest amount of money to do some good, and the borrower keeps their self-esteem intact. You know the saying "Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime." I think this micro-financing is along the same lines.

I know I am new to this, and some of you may already be way ahead on this. If you have a paypal account and can spare as little as $25, I encourage you to try it. For me, I am a coffee drinker, and one of my favorite coffees comes from Bolivia (see the icon on the right for more details on this group). So I chose to lend money to a group of entrepreneurs in Bolivia as my first attempt at micro-financing. They will use the money to buy tools and materials to build things that they then sell. It all sounds good to me. By next summer they are scheduled to re-pay the loan, and then I can use my money to help someone else. Cool eh?

So how do I tie this with the state of the economy? Let me tell you...

First, it is a form of unconventional financing, so it short-cuts the banks and insurance industry. As they are the cause of the problems we are in, any way to cut them out of the loop is a good thing.

Second, I believe that money is like water. It has to move, to flow somewhere or it gets stagnant and is of no help to anyone. As we help make it better for one part of the world, it will make the whole world a little bit better, and in time it adds up. Kind of like, what goes around comes around, or something like that. The day I did my first loan, I got a new paying client. It is good karma, and you get your money back too!

Third, I am not such a fan of charity. For example, rather than donate to breast cancer research I prefer to buy shares in a company that is doing the breast cancer research. I know where my money is, and I get annual reports on their progress. If one day they find a cure, we all win. So with micro-financing, it is a loan, not a gift. The pressure is on the entrepreneur to make a profit, so they can re-pay the loan over time. The repayment schedule is not too tight, so it is not a lot of pressure though.

Fourth, micro-financing supports self-employment through small businesses. It creates jobs which is what we need to pull the world economy up by its bootstraps.