The Power of Microcredits
I mentioned microcredits yesterday. The idea is to extend very small loans (microloans) to people who would have no capacity whatsoever to get loans through traditional means. Microcredits are targeted to the unemployed and poor, primarily focused on developing or under-developed nations where so many entrepreneurs can’t get their businesses started.
In November I read an article in the Montreal Gazette – Thinking small: Rooted in South Asia, Microcredit movement’s branches have spread to Quebec. The article was about Mohammad Hassan who started Jobra Centre, Inc. in Montreal, an organization that helps with the microcredit process (which they call “community loans” locally.)
In a developing country, a microcredit might be as small as a couple hundred dollars. In Canada, anything under $20,000-$25,000 is considered a microloan. $20-$25k is still a good chunk of change, but with the right government programs and corporate involvement, it wouldn’t be hard to give out a lot of good loans to people.
It’s already happening too. The article references one success story in Montreal, a diaper company called Bummies. It got off the ground with a loan of less than $25,000 from l’Association Communautaire d’Empreunt de Montreal (ACEM). Bummies now does over a million dollars in business, and supports 30 stable jobs. That’s amazing.
The more I think about microcredits the more excited I get. I wonder if my donations to developing nations would be more effective in the form of microloans versus hand-outs. What if I banded together with a few other entrepreneurs and we started finding ways of loaning small amounts of money to entrepreneurs all over the world? I’m not talking about $25,000 loans, I’m talking $500 loans. I can’t get this idea out of my head…
I love the idea of microcredit – both locally and internationally. Sure, an entrepreneur in Canada or the US is unlikely to get far on $500, and I don’t have $20,000 to give, but there’s absolutely no reason I can’t be an advocate to government (and wealthier friends/contacts) about supporting this idea. And internationally it seems obvious that microcredit can be successful.
Entrepreneurs are always your most passionate, aggressive and success-focused people. Entrepreneurs exist in all colors, shapes and nationalities. Point anywhere on the map and there’s bound to be an entrepreneur there itching to get started. They create jobs. They create wealth. Entrepreneurs can pick themselves up by the bootstraps and make something happen, and in doing so, they pick up everyone else around them.
Somehow, someway in 2007 I’m going to get my hands dirty in the world of microcredit. Wanna join me?
Please check out these resources for more information:
- The World Wide Web Virtual Library on Microcredit and Microfinance
- Grameen Foundation
- Microcredit on Wikipedia
Coming from Indonesia, I was also very interested. I even started and stalled a blog about it :)
Hey Perry – thanks for the comment. I’d love to see more blogs on the subject, I’m not sure there are many great ones out there.
It’d be amazing to see some blogging from people “on the ground” in places like Indonesia where microcredits are making a difference…
Hey, Ben, have you seen Kiva? They are doing this kind of thing around the world. For instance, right now I have money lent to a seamstress in Romania and two women’s collectives in African countries. I am really excited about Kiva and microcredit in general.
Sarah – I had not come across them. Odd that in a search on Google for “microcredits” they didn’t show up (at least not on the front page or so, if I remember correctly.)
I’m going to check out their site right now though, thanks!
Are you following the progress of your loans? Getting feedback from the businesses? Helping in any other ways? Tell me more!!
I think Kiva uses the terms “lending” and “micro-lending” more than “microcredit” which might explain their absence.
I’m definitely following the progress of my loans. It contributes to the “feel good” factor and convinces me that this is one of the best ways to combat poverty.
It depends somewhat on the region involved, but with most loans, regular updates are provided through journal entries and reports. For instance, see the page for Khadyjatou Ndiaye, one of the groups I’ve lent money to (they’ve just recently repaid it).
Sarah – that’s great stuff!
Do they pay it back with interest or is the loan interest free?
Do you think this approach to giving works better than straight up donations to charity?
It’s been a while since I looked into it, but if I remember correctly, the loan recipients pay a small amount of interest that funds some of the administration of the loans.
Long term, I think Kiva is investigating the possibility of passing interest on to investors, but if they had to choose, I’d rather they use the interest to keep the program viable. If I want a monetary ROI, I’ll put more into Prosper.
I prefer this approach to traditional donations for a couple of reasons. First, I can monitor it, so there’s built in accountability.
Second, although many traditional charities do participate in microcredit, I think it’s a much more effective solution than handouts, so I like to support organizations that do microcredit exclusively.
There are a few drawbacks, though. One is that it takes more resources to do person-to-person loans than to do a large program with established channels.
When Kiva first launched, they didn’t have the infrastructure to handle the initial investor interest, and it took a while for them to better match supply and demand (they needed to partner with more organizations to identify good loan recipients on a local level).
I believe in putting my money where my mouth is, so it may be revealing to mention that most of my charitable donations go to my local church for local needs, I sponsor a girl in Rwanda, and put a little money into Kiva. From that, you can conclude (accurately) that I see it as a great global solution and part of my overall efforts to make poverty history.
Sarah – you’ve totally inspired me today. I’m going to look at Kiva very seriously and put my money where my mouth is.
Also, please take a look at http://www.gifter.org.
I’m going to see if I can reach out to the Kiva folks about getting involved.