I had no idea what Microloans were until watching a Frontline story last week.  Much like  Web 2.0 connects people of all backgrounds together, microloans links individual borrowers with lenders.  Generally the borrowers are self sufficient business owners in developing countries who want to expand their practice but lack the means to obtain credit, and if they can receive loans face high interest rates and often unscrupulous banking practices.

Frontline’s piece focused primarily on San Francisco based Kiva.org.  Kiva lends worldwide, and their site features lenders and highlights borrowers and their success stories.

I explained the concept to a few friends while skiing over the weekend and of course the immediate question was “So what’s the payback rate?”  It’s actually quite high.  Due to the personal connection the lenders actually see the progress of their “co-business” through e-mail and web correspondence, while representatives placed in these developing and needy areas work closely in the communities ensuring the funds are put to good use.

Meanwhile back at home you can send as little as $25 from Paypal (who waves fees for Kiva) and watch your money be aggregated directly into something useful.  FAR more personal than mailing a check out to a large charity.  Better?  No,  but something different, and to me it seems much more immediate.

Included in the Frontline story is this article about the history of Microfinancing  

In most Western or developed countries, it’s relatively easy to obtain credit through large banks or money lending institutions. But in the developing world, where many people lack steady employment, credit history or collateral, there’s often no way for legitimate small businesses to receive a loan.

In many ways, microfinance changed all of this. Generally defined as small lending to the rural poor in developing countries, microfinance has made great strides in the latter half of the 20th century. The 2006 Nobel Prize awarded to Dr. Muhammad Yunus, one of the founders of modern microfinance, has helped to push the industry even further into the spotlight. But the idea of microfinance has existed for hundreds of years — in many regions and in many forms. 

And some criticisms for healthy measure:

Critics of microcredit say that many of the poorest of the poor still do not qualify for a loan, because they pose too much risk; and those that do qualify use much of their loan, not for business, but for simple needs such as food for their families. 

Others insist that microfinance is not a complete solution, charging that those who have benefited from the industry overstate its value in order to keep the model going. Institutions like the World Bank and the International Monetary Fund have also come under fire for funneling into microcredit institutions money that could have gone to funding for education, health or other basic social infrastructure needs.

Read all of the Frontline articles here, including a list of active organizations.   And consider a microloan for your next charitable donation.  It’s a cool way to be involved, and even if it’s just a “micro-donation” it can still go far.

by James Van Dellen