Every Little Helps

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A duck farmer in a rice field, VietnamHere’s another way to help make this world a better place for all: micro financing. I recently stumbled across Kiva’s web site, and am both fascinated and doubtful. Here’s how it works: you or I invest a small sum, $25 upwards, and lend it to someone who asks for a small credit. This could be a farmer in Mali or a collective of women in Cambodia or anyone anywhere, really. Credit takers are poor, can’t afford a large load and would never get it from a corporate bank, so they take out a tiny loan through a micro financing scheme. Maybe $150 for a pair of new goats, or $250 for farming tools, or $500 to rebuild an irrigation drench to the rice fields. People taking out such a micro loan pay back over two years or so, in monthly payments that seem small to us. When you or I get repaid, we can take our money back out of the scheme and buy important things like a new mobile phone, or re-invest and give credit to somebody else.

You and I won’t earn an interest from this. Kiva, for example, finance themselves through different sources, so your $25 actually go through 100%. Well, that’s where the problem starts. While Kiva doesn’t take a cut, a local micro financing organization does. It’s not a corporate bank, but still, a business that reviews and approves (or rejects) applications for credit, and manages the collection of repayments. I understand that someone has to travel to some remote village to see if the applicant really is in need, and if the scheme of buying two new goats makes a good plan.

The part that I don’t get is that they take something in the order of 10% “for the cost of the money” – What? I thought I had just given you my $25, at no extra cost to you?

I like the idea of micro financing. It means helping people to help themselves, and it is much more personal than giving a big organization some money and never knowing what happens to it. If anyone knows more about micro financing schemes and the true cost of the loan to the borrower, please let me know.

Obviously, I don’t want to fund a scheme to feed a local credit shark in disguise.


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