Friday, November 2, 2007

Financial Recycling

This is a bit out of left field, but, since I first heard someone speak about it years ago when I was in college, I have been fascinated by the idea of microcredit, primarily by the idea of Grameencredit-type microcredit. Somehow it never occurred to me that I could become a microlender myself, that is until I saw this post in my IRL friend's blog.

There is a lot of info about microcredit available online, but the short of it is that microcredit provides a way for those who need a small-scale loan but might not be able to get one to get one. Those in need apply, and those who can fund it fund it. In its most traditional form, microcredit comes from moneylenders, pawnbrokers, personal loans, etc., and can be used to finance anything the borrower wants to buy. In the form I find appealing, microcredit is financed by community development banks (e.g. Grameen Bank), by non-profit foundations (e.g. Accion), and by individuals, often with the aid of non-profits (e.g. Kiva, which serves as a hub to introduce microlenders in the developing world to those with funds to lend), and is used to finance economic growth. Loans are made to the poor in developing nations, generally to provide capital to fund a business to help it to develop -- for example, allowing a dairy farmer to purchase another cow, a shop-owner to acquire additional merchandise, or a dress-maker to buy more cloth. As the business expands, the business owner pays back the loan. When the loan is repaid, the borrower is eligible for a new loan.

As has been said (and oft debated) before, it often takes money* to make money, which means many people around the world have no ability to make a sustainable subsistence income. I have some money I can spare, but not really enough to make a difference in my own standard of living or that of anyone else I know. So, today I made my first two loans -- one to an auto repair shop in Togo, the other to a dairy farmer in Azerbaijan. Such loans are neither charitable donations (since, if all goes as planned and the borrowers are able to expand their businesses successfully with the help of the loan, I'll be repaid), nor investments (since as a lender you receive no interest). The risk to me is low -- 96+% of loans through Kiva's field partners are repaid on time according to their repayment schedule. If/when the loan is paid back, I can reinvest the money in one or more additional businesses. It's like financial recycling, and I do like recycling. Plus, it's a little kick on the positive side of karma.

* or an economy in which there are enough jobs paying a living wage to accommodate all who are willing and able to work one


Baby Step said...

Thanks for stopping by my blog! :-)

Baby Step said...

P.S. I once got a fortune that says, "You love Chinese food". :-)