Microloans (or microcredit) are granted to those with aspirations of starting up a small or home based business. These loans are available in the US, but also abroad in many impoverished nations.
Many of these entrepreneurs have little or no credit, possibly even bad credit. Most of the time, these entrepreneurs are unable to obtain business funding.
Microloans have been around since the 1970’s. Only in the last decade have major creditors seen them as an investment opportunity. Even everyday people with money to loan can get in on the action through various websites.
Are Microloans Legitimate?
Skeptics however question the legitimacy of microloans. For example, the nature of the loans are seemingly immaterial in size. Do they actually make any impact on an impoverished country as a whole? Do they simply just help certain individuals (the entrepreneur themselves)? Are they reduced by administrative costs so much the effect is highly diluted?
Are the borrowers reputable? Will they stick to the terms of the loan arrangement? Additionally, sometimes the loans simply go towards paying off another creditor, even personal expenses. In this case, nothing goes towards the future economic growth of any geographic area.
The Case For Microloans
I believe that people are generally well meaning. There will always be bad apples, but in general I have a positive viewpoint of any entrepreneur.
I also believe the first step towards helping an impoverished country isn’t providing a handout. Rather the first step is funding entrepreneurs who can in turn create economic growth.
Economic growth equals jobs. More jobs equals a rising standard of living.
A tide of economic growth will lift all boats. While a handout provides for a day, economic funding to a well meaning entrepreneur can provide for a lifetime!
My Personal Microloan Journey
After much research and thought, I’ve decided to start a microloan program through our business Redrock Wealth Management (RetireWire is my blog, Redrock Wealth Management is our financial advisory practice).
The channel I chose to do microloans is www.Kiva.org. I chose Kiva for it’s size and reputation. They have a substantial presence in the marketplace for facilitating microloans.
Through Kiva, I can select a borrower and make a direct loan. For my first recipient, I chose a male in the Phillippines who is part of a group of 5 borrowers looking to purchase materials and equipment to start a plumbing business – Manuel Nitura’s Group.
They’re looking to raise $1,250, and I chose (as my first microloan) to start with an amount of $25. The repayment term is 8 months, the schedule is monthly, and there is no default protection (some loans do offer default protection).
It will be interesting to see this work in real time. Ideally I’ll fund many more loans. After being repayed I plan on adding to the amount and continuing to find other worthy borrowers.
Microloans in Summary
It’s a neat project! Rather than reaching into my wallet for the homeless person at the gas station looking for beer money, I send it to Kiva.org. This way the recipient has been vetted, and definitely has the right intentions.
If you haven’t heard of microloans – it’s worth looking into. I’ll blog updates as this initial loan progresses!