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Microfinance: Doing Well by Doing Good
As the stock market turmoil continues, investments
that offer some measure of safety look good.
By RONa FRieD, Ph.D.
Rona Fried, Ph.D., is
president of Sustainable
Business.com, the online
community for green
business: daily sustainable business and investor news, Green Dream
Jobs, Business Connections and the sustainable
investing newsletter,
Progressive Investor.
Contact Fried at rona@
sustainablebusiness.com.
Consult your financial
advisor before making
any investment.
Microfinance, the provision of loans, savings
accounts and other basic financial services to the
poor, has been a critical lever in helping people
to help themselves. In 2007, Americans gave $300 billion
to charity but put $2.7 trillion in socially responsible investments. The idea of doing good while making a return on investment is much more compelling than donating to charity.
Until the advent of microfinance, fewer than 2 percent
of the world’s poor had access to financial services other
than money lenders.
How does it work? Tiny loans, usually given to women,
enable them to create or expand a small, self-sustaining
business. A woman might borrow $50 to buy chickens
so she can sell eggs at the local market. As her chickens
multiply, she sells more eggs, and soon she can sell chicks.
She shares knowledge with her neighbors, creates jobs and
raises the standard of living for the community.
Loans mostly go to women because 60 percent of the
world’s poor are women, subsisting on less than $1 a day.
Studies show that women are more likely to reinvest earnings in the business and in their families and are more careful to repay loans.
According to Deutsche Bank, microfinance institutions
have raised $25 billion of the estimated $250 billion needed
to assist the billion people who need loans.
History and Growth
Microfinance has long been synonymous with Grameen
Bank. Its founder, Muhammad Yunus, won the 2006 Nobel
Peace Prize. While only 4 percent of the poorest people
in Bangladesh pulled themselves above the poverty line
without credit, 48 percent have done so with Grameen
Bank loans.
the Whole Planet Foundation’s calendar supports
microfinance organizations
including Grameen Bank.
wHole Planet foundation, wHolePlanetfoundation.orG
20 March 2009 SOLAR TODA Y solart oday.org
The 40-year-old movement began as charity. Governments, aid agencies and the United Nations donated funds
to be used for loans. Surprisingly, loans to the poorest of
people turned out to be profitable and, since 97 percent
were paid back, relatively risk free.
When nonprofit lenders realized they could provide
commercial services instead of depending on donations,
the field took off. After converting from a nonprofit,
Bolivia’s Banco Sol became one of that country’s most profitable banks!
Investment in the microfinance
sector is crucial now to maintain
its growth.
Since the 1980s, these scaled down banks have flourished by identifying and servicing borrowers in their local
communities. The World Bank estimates there are more
than 7,000 microfinance institutions, serving some 16 million people in developing countries with $7 billion in outstanding loans.
e Bay founder Pierre Omidyar, Bill Clinton and Bill Gates
are all microfinance investors. Citigroup and Deutsche
Bank have microlending operations.
During past economic downturns, microfinance outperformed commercial portfolios, but the current worldwide credit crunch is hitting every sector of society. Investment in the microfinance sector is crucial now to maintain
its growth.
investment options
The easiest way for individuals to make loans is to pur-
chase Community Investment Notes through the Calvert
Foundation website or through most broker-dealers. For
as little as $1,000, you can lend to small U.S. businesses or
to people in developing countries.
You can loan as little as $20 at MicroPlace, which is
owned by eBay. Since its 2007 launch, MicroPlace has
facilitated $1.5 million in transactions, or 30,000 loans.
Although a 2 to 3 percent loan return may seem small,
it’s not bad for a low-risk investment that also provides
social returns. At Kiva, you can make zero-interest loans
and get your money back at the end of the term. In all cases,
the funds go to microfinance institutions that loan directly
to borrowers.
