As I write this on Wednesday evening I`m sitting in a comfortable home office, pecking on my laptop, drinking a cold beer, and trying to decide if we should go to eat at the Indian restaurant down the street. My concerns tonight revolve around Fitzmas, some arcane tax issues, and whether or not my wife's new car should be a Prius. She is in the dining room working on our son's Halloween costume; I needed a few minute's break.
But 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.
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. Colman over at European Tribute
posted a story about KIVA from The Sharpener
. 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.
From the Kiva website
Kiva was born out of Matthew and Jessica Flannery's combined professional interests, experiences, and expertise. In spring 2004, the couple spent several months working in rural Kenya, Tanzania, and Uganda - Jessica as a staff member with Village Enterprise Fund (VEF), and Matthew as a filmmaker. They were struck by the success of hundreds of small businesses started by VEF, the incredible impact of those businesses on their communities, and the vitality and potential of those businesses' entrepreneurs. <snip>
What We Do
Kiva lets you connect with and loan money to unique small businesses in the developing world.
By choosing a business on our website and then lending money online to that enterprise, you can "sponsor a business" and help the world's working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive monthly email updates that let you know about the progress being made by the small business you've sponsored. These updates include reports on loan repayment progress, photos of new capital equipment, narratives on business growth and standard of living improvements, and more. As loans are repaid, you will get your original loan money back.
How does the loan process work?
By partnering with existing microfinance organizations and institutions, Kiva finds outstanding entrepreneurs who need loan funding. Our expert in-country staff works with these partner organizations to conduct due diligence on each business, and once approved, post each business' profile on our website. This is where you come in. You can choose loan money online, using your credit card or Paypal, in increments as low as $25 toward the loan needs of a business. With your participation, Kiva gives entrepreneurs access to the capital they need to lift themselves out of poverty.
The Kiva site offers descriptions of business needing loans and of those who have already received them. This one is typical. Geoffrey Obanja Jasu started with a $100 loan, and is now trying to expand his business.
Partner: Village Enterprise Fund
Partner Rep: Moses Onyango
Location: Tororo, Uganda
Entrepreneur: Geoffrey Obanja Jasu
Activity: Produce wholesales
Loan Amount: $500
Loan Use: Buying more produce each time for greater profit
Start Date: April 1, 2005
Loan Repayment Term Range: 6-12 months
Amount Repaid: $400
The following description was written by Moses Onyango, a volunteer with Village Enterprise Fund and partner representative for Kiva in Uganda:
Geoffrey Obanja Jasu is one of the most hard-working beneficiaries in Tororo District.
He got a grant of 100 US dollars form Village Enterprise Fund as a kick start.
He started with baking local bread called Mandazi, Kabalagala (pan cakes) and also Samosa.
After attending training on business skills twice, he got wide knowledge on how to choose and run his businesses effectively.
He then shifted to running a produce business, including the buying and selling of millet, sorghum, rice, groundnuts, peas, beans, green grams and sunflowers.
His business picked up very much and he got enough profit to hire a store for stocking the produce before selling it.
He now moves around the district buying all the produce from the beneficiaries of Village Enterprise Fund.
I expect him to do greater business to bring development in the lives of our people who are the poor of the poorest.
Given a loan of 500 US dollars, he will excel very much.
He is capable to handle repay the loan effectively.
The UN General Assembly designated the year 2005 as the International Year of Microcredit, so what better time to look at Kiva's site. It really is a brilliant idea, and the site is very informative.
I know diaries like this one don't get lots of comments; they don't make "the list": and they aren't as much fun as scandals. But this kind of an idea can change not just the country; it can change the world. It reaches those people who would consider the poorest victims of Katrina well off, who don't have the luxury of engaging in politics.
I just received an e-mail from Matt Flannery at Kiva, and another from one of his colleagues. They seem amazed at the number of dKOS folks who are contributing. Matt says he is “stressed out” trying to qualify and put up new businesses needing loans fast enough.
Good work Kossacks.