Blog Action Day Idea: Microfinancing
I love Blog Action Day. And I love that this year’s theme is poverty. When we all band together to make a difference, it is actually possible to, well, make a difference. One of the best ways to make a difference is to help others help themselves. One of the ways I do this by contributing to an organization that helps those in poverty obtain an education. Another that it is possible to help others help themselves is through microfinancing.
Microloans and the fight against poverty
Microloans are loans in small amounts that people or organizations can make to those in third world countries. In most poverty stricken areas, the amount of money needed to start a business is right around $1,500 to $5,000. That seems small to us in many cases, but it is a huge amount if you do not have any money at all. This is where microfinancing comes in. You can make a loan (for part of the amount or the whole amount) to an entrepreneur who is trying to get started.
The beauty of this is that it is a helping hand, not a hand out. The loan is paid back, at a reasonable rate of interest (usually around 7%). This helps those in poverty in a few ways:
- Loans are more affordable, since many local sharks charge between 11% and 20%, meaning that many earnings go to paying back the loan.
- Small businesses can be started, providing support for families and often providing educational opportunities for the children of the entrepreneurs.
- The cycle of poverty can be broken as more people raise their standard of living.
The bonus for the financier is that there is a return on the money. Yes, there is a risk of default. However, there is a rather low default rate on microloans (right around 1% or 2%). While the return isn’t anything really dramatic, it is important to remember that the monetary return isn’t the main point of microfinancing anyway.
Here are some more Blog Action Day posts on microfinancing:
Tags: microfinancing, microloans, investing blog, Blog Action Day,
economy, fight poverty, poverty
October 15th, 2008 at 11:28 am
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