I recently looked deeper into “microloans” to the poor — How they work, how requests are vetted, what percentage of the money gets into the hands of the borrower, average default rates, benefits to the borrowers, are many people participating, etc. Here’s what I learned.

Microloans are small loans (by Western standards) to entrepreneurs in many poorer countries that let them start or grow a local small business (often a one-person or family business).

There are multiple organizations to assist with this. I focused in on the Kiva.org website since it has been mentioned by many over the past year as a good non-profit organization handling microloans. Some Kiva stats:

  • 98.9% repayment rate to date
  • 44,297 lenders made a loan this week
  • $3,086,525 lent this week
  • 3,440 new lenders joined Kiva this week
  • 5,938 borrowers funded this week
  • 6 seconds between loans

Kiva administers loans through field partners. Each field partner has unique social performance strengths and risk attributes, and vets each borrower.

The Kiva website makes it very easy: (1) Choose a borrower, (2) Make a loan, (3) Get repaid, (4) Repeat.

“Empower people around the world with a $25 loan.”

Two Neat Features

I really liked the fact that this is not a one-time “donation.” This is an investment in a specific person’s life and the investment is paid back over a predetermined repayment schedule to your Kiva account where you can then turn it around and re-invest it in someone’s else’s business. Your initial investment can be used over and over to help people start or grow their local businesses.

And, you get to select who your investment goes to. There is a large list of thousands of borrowers on the website containing their picture, their business need, any previous borrowing experience, the repayment term (e.g. 6, 12, 15 months), lots of details. There are handy search and filtering capabilities on the website so you can focus in on a given country, and/or an industry (e.g. agriculture, clothing, construction, food, health, retail, services), and many other attributes. Then read about the need, see how much they need and how much they have already been funded.

Get the family involved. We all gathered around the PC, focused in on a couple of countries, industries, etc., and then selected who we wanted to invest in. The Kiva website aggregates the loans and lets you know when your borrower has been fully funded. You probably want to split your investment across multiple borrowers in multiple industries. The smallest investment amount is $25.

One of my children really liked this method of helping people, and being able to help more people in the future when these same funds are repaid, that they put some of their own money into some borrowers of their own selection (in addition to the family amount that we jointly selected borrowers for).

There are lots of stats on the website, and lots of detailed tracking of the repayments. By default you get to re-invest the repaid amounts or you can withdraw it from the system once paid back. You can also set the repaid amounts to be automatically reinvested by the Kiva system if you wish everything to be put on “auto-pilot.”

You can also track your investments as a “virtual team” if you wish. I created a “Team Westheights” team for this purpose. It’s just a “group reporting” feature of the website (it aggregates the amounts loaned by the team). It’s optional to associate your loans with a team.

I think microloans are a great way of reaching out and helping others get a start, or take a next step in a business activity that lets them become more self-sufficient and potentially lets their earned monies be spent within their local community, generating ripples of benefit for others. And you get your investment back so that you can help someone else, over and over.

In my opinion, microloans are an option worth looking into and considering. I like the Kiva methodology, but there are also others that facilitate microloans such as the Purple loans for bad credit or others of the same type.

Obviously there is a risk to any investing, e.g. the loan might not be paid back, and past performance is not an indicator of future repayment activity. This blog post is not professional advice. Become informed, make your own decision, use at your own risk. There are lots of details available on the Kiva website.