A Lesson in Microcredit and 'Loans that Change Lives'

As you think about buying gifts this holiday season and the impact on your investment accounts amidst the turmoil in the economy, consider that many people in third world countries don't even have access to the most basic financial services, like savings accounts. Imagine trying to start a small business to support yourself and your family with no access to credit or financial services. Enter the world of microcredit, the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not considered eligible for even the most basic loans.

Microcredit is an extension of microfinance, which Wikipedia defines as "the provision of financial services to the poor." Microfinance is an emerging movement that "that envisions a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services."

I've become fascinated by the idea of microcredit because it empowers people to create their own wealth. Rather than donating $10 to feed someone for a week, you donate $10 to help seed a budding business that can potentially sustain their family and the community for a much longer span of time. It goes with the adage, "give a man a fish, feed him for a day. Teach a man to fish, feed him for life." If I were to switch careers, I would explore teaching basic finance to recipients of microloans because the whole concept is fascinating and meaningful to me.

'Loans that Change Lives'

With all that background information out of the way, I'm incredibly excited to share with you a site called Kiva.org, which lets you dip your toe in the world of microcredit by loaning money to an entrepreneur in the developing world - from countries like Tanzania to Mexico to Peru.

Kiva is "the world's first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs in the developing world." So experiment with a different kind of donation this year - a donation that helps someone start a business and one that you get back - allowing you to start the cycle all over again.

How Kiva.org Donations Work:

  1. Lenders (you) browse entrepreneur profiles and donate as little as $25 via PayPal or credit card.
  2. Kiva's partners distribute the loan, and in some cases provide training for the recipient.
  3. Over time, the recipient repays the loan (you can choose to opt-in to email updates)
  4. When the loan is repaid, you can loan to someone else, donate to Kiva's operating expenses, or get your money back.

Click here to check-out some entrepreneur profiles, or read journal entries that chronicle recipients' experiences.