Let your change do some change

Internet has enabled a lot of new business models, and one that has caused quite a lot of excitement is online microlending. The concept is simple, with a credit card, paypal or other type of payment format, you can upload money to a site and then choose specific entrepreneurs or projects in developing countries to lend that money to. The money is then funneled through to a microfinance institution (MFI) partner of the website that then takes care of the actual disbursement and later recollection of the money.

In essence, this is about providing a way for MFIs to get liquidity in order to lend to more people. The MFIs will suggest projects to the microlending website and will also submit status reports, pictures etc.

I’ve tried a couple of these services and can share my experience.

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The first and foremost of these types of services is Kiva. Kiva sparked an interest amongst non-profit everywhere to be able to get online and get massive amount of leverage for their causes, trying to emulate Kiva’s success. Few have probably succeeded as well and Kiva is probably going to proove hard to emulate – it’s a combination of a simple and direct messaging as well as a very clear way to choose specific projects to benefit. Kiva allows you to lend in $25 increments and you can easily search entrepreneurs by region, activity and more. The site and system is highly simplified and they have hidden all the detailed intricacies of microlending – no discussion of interest rates and such here. The profiles of the lenders include pictures & also links to a profile page of the partner MFI with information on default rates and more.

Lending with Kiva is done in a snap, and as soon as $25 from all your loans have been repaid you can re-lend the money to another borrower. Important to know though is that there’s no guarantee that you will get your money back, and in essence you are loosing real value since there is no interest to account for inflation.

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MyC4 takes a completely different route from Kiva. Here you are in control of the interest rate that you offer on your loan, bidding with others to offer certain amounts at a certain interest. Essentially, the lenders on the page bid on who can offer the lowest interest to the entrepreneur, and the cheapest way of funding the loan will eventually be chosen from all those that offered credit. This means that if the loan is €100 and you have 5 people offering to lend €25, one at 17% interest, two at 15% and three at 12%. Only the five people offering 15% and 12% will in the end be giving the loan. Furthermore you as the lender will be charged any currency related costs and transaction costs. This site can be much more engaging for those who are interested in the intricacies of microlending, however if you’re looking for a simple way to contribute this is not – the process of lending is far much more complicated.

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The final one I am going to touch upon here is Micro Place. Sadly, I haven’t been able to try out MicroPlace as it’s limited to US lenders only, however I would like to share their model as it’s an interesting comparison to the other two.

This was a company that recently got bought by microfinance eBay and is now part of the big online company. The website is probably the best designed of the three, and clearly focuses more on the person new to the subject of (unlike MyC4). You can receive a financial return which is here set at between 0-6% (at MyC4 the rates can be anything but generally are between 10-16%). The search is the best of all three and allows you to specify multiple regions, issues, rate and time of return and so on. What I lack however is sorting by type of activity (such as farming, storekeeping, manufacturing and so on).

Micro Place takes a middle road approach to Kiva and MyC4. Where Kiva has a more philanthropic feel and MyC4 a focused capitalist viewpoint MicoPlace combines a simple aim with a possibility to also look at the financials of the loan.

Saying that, however, I have most money active on Kiva and this is also the site that I have been recommending to friends & family (lately all my gifts have been Kiva gift certificates). Mostly this is because the interface is simple and smooth, and that MyC4 simply takes too much time to work with for the average person.

Whatever you do, I recommend you to try these out instead of making a donation next time. Even though your money might loose slight real value you will still be able to re-lend over and over again. This means that a $100 investment to Kiva can continue to be lent as many times as you wish, creating several hundreds of dollars of value.

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