Investing for a better world part I

(quick diversion from global warming to global poverty)

Today I discovered Kiva, a non-profit site that aggregates microfinance requests from organisations representing individuals in developing countries (more about how they work). You choose a specific individual who you want to lend the money to, how much you want to lend, and pay by PayPal or credit card. You can take a portfolio approach, investing a little in a range of businesses to spread the risk (each loan request is fulfilled by multiple donors). You get emails through the course of the loan updating you on the progress of your debtor, and at the end of the loan duration you can reinvest or withdraw.

Realistically, I'm not the best person to chose which individual gets a loan. So the best bit for me is that Kiva works with local agencies to preselect people who have the skills and attitude required to make the most of their loan, and therefore make the funds to repay it. This has lead to their 100% repayment record.

But how do you know you are going to get the money back? Some of these loans are going to the homes of the most prolific and ingenious internet scammers about. And what about the local partners? If the governments are corrupt, how can you be so sure about them. And then the individuals - how do you know that they are going to use the money for what they say?

The answer is you don't. You have to trust and believe that people are basically good. Microfinance organisations around the world (the World Bank estimates that there are now over 7,000 lending $2.5bn a year) and hundreds of studies have shown that repayment rates are very high when you let local groups set the criteria for lending and select who gets a loan. The largest and most famous microfinance bank, Grameen bank in India (home of Nobel prize winner and father of microlending Prof. Muhammad Yunus) has nearly 6 million borrowers, and has disbursed over $5.4 billion has a steady repayment rate of around 98%.

More info:

• The United Nations Capital Development Fund has a centre for microfinance with lots of background material
  
• Microcredit library from the Global Development Resource Centre - a very ugly and unusable site, but lots of good information.
  

Anyway, I chose to lend to:

• A formidible looking woman called Akou (above) in Togo, who needs capital to expand her food business to support her children after the death of her husband.
• An enthusiastic looking young man called Kokouvi also in Togo, who is going to set up a food shop in order to pay for the education of his little brothers and sisters.

I'll keep you posted with their progress...