Some say that microfinancing is a scam, some regard this new financial phenomenon as the next big thing. What is the reality?
Microfinancing is a service that provides small loans (usually low percentage) to people and communities in the developing countries (I like to call them emerging markets). Supporting communities is a great thing to do and I suppose everyone who’s into green investing, should do it.
Kiva
There is the much-touted Kiva who will collect donations from you and distribute the money along the chain of local lenders who will then give out the loans and pocket the interest. Donating money so that a lender (aka field partner) in Karnataka can buy himself a new Tata Safari (yep, that’s the famous 4×4 car with a rear-wheel drive… LOL, ROFL!!!) doesn’t seem like a great option to me. If you feel the same, there’s a way to make microfinancing work for you.
From one hand, Kiva is making a difference, no question in that. What I’m getting at is that by taking part you’re not really donating in its most unambiguous sense. Somebody is making money from those donations and that’s what I think is wrong. To make things clear and avoid tomatoes flying my way, I will say that Kiva is a non-profit organisation and is not known to be involved in any wrongdoings.
Microplace
When eBay opened Microplace in 2007, American citizens instantly gained access to a fair model of microfinancing. On Microplace you find a project you wish to support and invest your money. After a certain period of time you get your money back plus a rather decent amount of interest.
The rate ranges from 1 per cent to 6 per cent, so in effect, considering the current banking situation, Microplace is a better investment than a savings account in a high street bank. By rather supporting a budding businessperson in an emerging market, you keep those bonuses out of the greedy City banker’s pocket and still protect your money from the inflation.
To be perfectly honest, eBay doesn’t run this service on a loss basis, however, the best part of the money they make, they plough into different social and community projects. Yet it’s not any good for us Brits – Microplace accepts only US based individuals. However, having spoken with people “here and there”, I’m certain that they’re planning to expand into Europe. That’s why you should register with the Microplace and tick the box that opts you in for their newsletter. Thus you’ll be able to jump on the boat when it comes across the Atlantic.
Let us Brits on Board!!!
Meanwhile there are a few services accepting Brits already. MyC4.com, Oikocredit.org and Responsability.com. The former being by far the easiest for a beginner to master.
The best thing about microfinancing is that you don’t have to be a pro investor to do it. Anyone can have a go. Whether it is £20 you wish to contribute or thousands of pounds sterling, it will make a huge difference for people who’re dreaming about their own business.
Give ’em a fish and you’ll feed them for one day, microfinance them and you’ll feed them for life. Much better than any donations or human aid. People should be able to take care of themselves and provide for their families regardless of where they live. By choosing microlending rather than donating, you’re making it happen.
As for any tips, I always remember what Warren Buffett used to say… umh, I cannot give you the exact quote but the idea was that the only safe investment is investing in things people use every day. My spare cash is tied up in Kazakhstan supporting local women in agricultural communities.
People rarely support ex-Soviet republics because they don’t know much about these countries. People in this region are generally well educated and hard working. Tough people with deeply rooted cultural traditions are more likely to succeed in their endeavours. If you decide to give microfinancing a go, you can also let your heart pick the project you want to support.
I will appreciate comments from people who have been involved in microlending projects.
I’ve always thought that there were plenty more opportunities in the Obamaland. Britain always misses out on something. So, this came as a surprise to me about that myC4.com thing. Well done Arvid spotting this! Thumbs-up!