In third-world countries, impoverished people are desperate for money to create or grow their own tiny, life-sustaining businesses, such as bread making or thread spinning, but they have no access to capital. Banks will not lend money to people too poor to give meaningful collateral. The cost of providing such small, unsecured loans exceeds the revenue.
With no established institution to turn to, these poor people often turn to local loan sharks who offer smaller loans quickly. However, these moneylenders only disburse loans bearing extremely high interests rates. A study of 14 countries in Asia, Latin America and Africa showed that 76% of moneylenders charged at least 10% per month, and that an astounding 22% of moneylenders charged at least 100% every month.
Microfinance offers a feasible solution. Invented by Nobel laureate Muhammad Yunus, microfinance involves the funding of very small loans—typically equivalent to $100 or less. The microloans are backed by nothing more than the promises to repay by other hopeful microloan borrowers who understand that timely repayment of each other’s debt is expected if future microloans are to be offered to any of them. Repayments and profits are recycled into yet more microloans. Access to such financial services helps the poorest to move out of poverty, making a real difference in third-world countries.
Microfinance institutions are active in developing countries across the globe. Kiva, founded in 2005 and headquartered in San Francisco, functions as a sort of “bank’s bank” to support those microfinance institutions. The Stuyvesant Microfinance Initiative collects donations from sympathetic supporters like you and funnels the donations to microfinance institutions through Kiva. When those loans are repaid to the microfinance institutions, the revenue is rolled over and loaned to other needy people. So any donation to The Stuyvesant Microfinance Initiative helps not just one borrower, but potentially dozens of disadvantaged people.
