Daily Kos: Microcredit: be a Venture Capitalist.

Microcredit: be a Venture Capitalist.
by Chris Kulczycki

in Uganda, and Bangladesh, and dozens of other countries my counterparts are sitting on dirt floors worried about how they might buy a couple of goats, or what will happen if no one fixes the pump at the village well. My wife's counterpart may be trying to figure out a way to buy a sewing machine to earn enough to feed her children. They may not earn the price of a laptop in a year, or the cost of a Prius during their entire lives.

* Chris Kulczycki's diary :: ::

A small loan could help these people start a home business, or even a store, improve their small plot of land, or fix their well. But what bank will bother with a loan of $25, or $100, or even $1000. And a credit rating is as unlikely for these villagers as a vacation in Tuscany. But there is a way to make tiny loans at low or no interest rates. It's called microcredit. NGOs have been making microcredit loans for years. But a new organization, Kiva allows people like us to offer micro loans. Individual micro loans are the most exciting charitable plan I've heard of in years.

Do Micro loans really work? They are perhaps the most effective way to help the impoverished that's ever been developed. From the New York Times (archive, February 16, 1997):

Anyone who scoffs at the value of 62 cents should talk to Muhammad Yunus. In 1976, the Bangladeshi economics professor tried an experiment. From his pocket, he lent the equivalent of $26 to a group of 42 workers. With that 62 cents per person, they bought the materials for a day's work weaving chairs or making pots. At the end of their first day as independent business owners, they sold their work and soon paid back loan.

Thus began the microcredit movement, which has become the world's hot idea for reducing poverty. This month, microcredit's backers met in Washington to begin to broaden the program's reach and raise money from developed nations and institutions such as the World Bank. Eight million people are now getting microcredit, half of them in Bangladesh. Microcredit proponents want to expand that to 100 million people by 2005.It is a worthy goal that the United States should support.

The first microcredit program was the Grameen Bank, founded by Mr. Yunus. Now almost all its borrowers are women, who tend to be poorer than men, have fewer opportunities and are much more likely to spend new earnings on their children. Grameen requires its borrowers to organize themselves into groups of five. All are cut off if one borrower defaults. They meet every week to make loan payments at commercial interest rates and critique one another's business plans. They also pledge to boil their water, keep their families small and carry out other good health practices. People who repay small and loans on time can take ones. Grameen, which now makes a profit, claims a higher repayment rate than traditional banks. One-third of its two million borrowers have crossed the poverty line and another third are close.

You don't need to go back very far to hear of microcredit's success. Try tying `microcredit' into Google news. This is from today's Vietnam News

HCM CITY -- Tran Trung Tam lived hand to mouth for nearly 20 years, helping to feed and house his eight children by doing any odd job he could find. His wife, Tran Bich Lai, worked as a helper for market vendors, carrying food and other items from place to place.

With only a primary school education, the couple thought their lives would never improve. But after receiving a free house in 1999 from their local People's Committee and a VND10 million (US$630) loan from the Bank for the Poor, Tam and Lai, 40, were able to set up a household business making plastic bags, which now earns them at least $250 a month.

There's lots more information on microcredit on the web. But this diary is about just one program that uses the net to match those in need with individuals, rather than banks or NGOs. Kiva is based in Palo Alto and works in Uganda.

After looking over the site and reading some press and blogging about Kiva I came away very impressed with the idea. Instead of sending off a check to some NGO and not knowing what happens to it, Kiva allows individuals to participate in the process. I expect this will offer lenders real motivation.

Daily Kos: Microcredit: be a Venture Capitalist.


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