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Micro-Loans for Entrepreneurs among the Extremely Poor

by Gary Hood
The Challenge

Micro-lending, sometimes called micro-finance, provides disadvantaged people with a way to better their circumstances. Through small loans known as micro-loans, extremely poor people are able to invest in their own income-generating enterprises. Micro-lending builds confidence and hope while enabling these entrepreneurs to support their family through their work.

According to the World Bank, there are 1.4 billion people who are living on less than $1.25 a day (in U.S. money). These people often do not have access to clean water, sufficient food, shelter, or even the most basic health or medical care for themselves or their families. Simply put, they have no way of starting their own business and are not candidates for traditional loans.

But with a micro-loan financed by caring individuals, these poverty-stricken people have a means to help themselves. For example, people in underdeveloped countries have applied for small loans to purchase food for their cows, to open a small village shop to sell garments, and to buy materials to make clothing. Remarkably, repayment rates on these micro-loans are reported as being very high, suggesting that investing in the poorest of the poor may not only help the impoverished but can also help (or at least not harm) your own financial well-being.

In recent years, social entrepreneurs have created mechanisms to facilitate lending money to people in dire need in small amounts (as little as $25) with reasonable (or no) interest. As these poverty-stricken people succeed, they not only improve their own lives but also generate the income to repay their loans, which frees up that money to be lent to other extremely poor workers.

The best news is that anyone with Internet access and a few bucks to invest can help. By investing in extremely poor people, you are giving them a vote of confidence and desperately needed financing to help them lift themselves out of poverty, with dignity.

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  • Log-in to Kiva or MicroPlace to create an account.
  • Fund your account. If you have a Paypal account, you can transfer the money online with one or two clicks. You can begin with as little as $25, but try to start with $50 if you can.
  • Browse through the various individual loan applicants (including pictures and a summary of their business) or (in the case of MicroPlace) local banks / micro-finance lenders and decide where and on what repayment terms to invest.
  • With a few clicks, make your investment.
  • When your investment is repaid, make another loan to continue the cycle.
  • Both Kiva and MicroPlace sell gift certificates. If you like the experience, buy a $25 gift certificate to introduce a friend or family member to it as well. 

Other organizations also help fund extremely poor individuals but as a contributor you do not get a return of your investment (neither principle nor interest). However, for as little as a few dollars you do reap rewards in the form of knowing you have helped enterprising individuals who want to improve their lives. One such organization is Opportunity International, and it allows you to view the loan requests from individuals and then choose which one you wish to fund.   

For more information on micro-finance and its use as a tool to end global poverty, visit FINCA/The Village Banking Campaign  and the Microcredit Summit Campaign.

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