Microlending not so Micro in scope
I took a course in college on Microfinance (the practice of giving relatively--in the terms of the lender--small loans to poverty-stricken people, with the understanding that the money will be used directly to finance a revenue-generating activity). A microloan might, for example, go to a poor person who has the ability to make trade-worthy clothing, but does not have any capital to purchase textiles or a loom.
For years, microlending was the stuff of academia, or at best, practised directly by NGOs with presences in local impoverished areas.
But much as sites like Prosper.com changed personal lending in the U.S., the web has led to the flourishing of microlending sites that work with regional NGOs to distribute loans to capital-starved entrepreneurs.
The first site that gained signficiant press was Kiva.com. It works with dozens if not hundreds of local NGOs to allow individual lenders like you and me to make loans to specific entrepreneurs or groups of entrepreneurs all over the world. One catch with Kiva is that the lender earns no interest (interest is paid by the borrower to the NGO, but the NGO keeps it for future operating budgeting), yet bears risk of default. Think of it as a donation, with the possibility of zero out of pocket expense. (click on image for larger, readable version)
As you see, I lost 13.05% of my "investment," but this is a far from typical experience. A glance oer to the "Average" column shows that the typical loss rate is 1.73%. The entirety of my loss was from a basket of loans that were sent through BRAC Tanzania, an NGO that apparently ran into problems sending money back to Kiva.
Lenders do see the NGO rating, and at the time I lent, BRAC Tanzania was 4/5 stars. This goes to show that you should treat a healthy percentage of your microloans as donations, and not expect to get them back. I would certainly not lend any money that I couldn't afford to lose.
By the way, notice that "Donations" tab" underrneath "My Portfolio"? That's a way for you to donate money directly to Kiva itself, so it can continue its operation of running the site, and coordinating with NGOs. Kiva will hit you up for donations at numerous points in the cycle, including the time at which you make a loan, and the time when you withdraw any repaid money to PayPal.
At some point (I'm sure the information is out there and easy to find), another Microfinance site Microplace (that does pay a bit of interest back to lenders) was acquired by eBay. With eBay's capital and savvy, they have room to really get off the ground. At some point a number of months ago, I made a $20 loan through Microplace, and was astounded when I saw the following statistics when I checked the site yesterday:
(click on image for larger, readable version)
As you see, Microplace is claiming an average amount of $843 invested per user. I'm not sure if they have a small user base and a few gigantic benefactos (eBay, for instance?) who have humungous portfolios and that's scewing the mean amount invested, but $843 per lender is quite remarkable compared to Kiva's $200 per lender. One factor might be that Kiva users can very easily give gift certificates (I've done this myself a numer of times), and the recipients of these gift certificates can visit the site and use the amonut of the certificate to choose a borrower, and make a loan. Maybe those kinds of users only loan the amount gifted through the certificate, and aren't as deeply invested in the process (no pun intended).
In any case, I can, with enthusiasm, say that if you have some money to spend, and you get a warm and fuzzy feeling from helping a specific person that you can choose from among dozens, take a look at Kiva and Microplace, and consider making a loan. youllbehappy you did.
