If you had to choose between putting your money into a savings account from which you gain minuscule interest, or lending your money to an entrepreneur in a developing country to get no interest, which one would you go with?
A Microcredit is in most cases a small loan that individuals invest towards small businesses or entrepreneurs in developing countries. It can also help to improve the lives of many women who, unlike men, have less of a chance to find stable employment.
There are a few popular online platforms available over the internet where a loan is made as an aggregation of a few smaller loans. Loans an be as small as $25 dollars. Some of these platforms are Kiva, Zidisha, and Lend for Peace.
Not every loan is invested in the same way. Some go towards a real micro-entrepreneur who might invent a small gadget that could improve the daily labor of most inhabitants. However many loans go towards helping women to pay their child’s education, or to purchase items to sell.
Unfortunately in its relatively infant stage, microcrediting won’t do much to improve lives of a whole community or district. As a post in The New Yorker states:
Microloans make poor borrowers better off. But, on their own, they often don’t do much to make poor countries richer.
Microloans are still too small to fund small to mid size businesses, which are the key to increasing employment in developing countries. Instead they will empower one man businesses or cover their expenses. The other current problem with micro loans is their cost. Average interest and fee rate is at 37% to the borrower. A good fraction will experience difficulty paying the loan back.
Overall, I choose to use the microcrediting system as a way to store some of my savings. Being practical, I am not looking to change the region with a mere few bucks. If I can make a change in just one’s person’s life with some money that I am not looking to use for a while, then why not. If you are looking to venture into something like this, always make sure to choose a candidate whose gig matches your interests.
Sources:
http://en.wikipedia.org/wiki/Microcredit
http://www.newyorker.com/talk/financial/2008/03/17/080317ta_talk_surowiecki
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