Microlending is a popular means of borrowing money because small loans are capable of making large differences for many people. Not only is microlending popular for borrowers, but it also benefits those individuals who are willing to give out loans as well. Some microlending websites, like Microplace.com offer interest in the loans that you give out. While some other microlending websites, like Kiva.org do not offer interest, they do make it easy for you to give out gift certificates. Microplace has paid as much as 3 percent in interest in the past, but as of Tuesday, they have announced that they have a fund that is now paying out 5 percent.
If you have checked out CD and bank account rates as of late, you probably know that in comparison what other lending institutions are offering, 5 percent is nothing to sneeze at.
The money lent out through these microlending websites is offered to poor people, most who are women, who are located all over the world. The portfolio that is now paying 5 percent is going through an organization known as Micro Credit Enterprises. This organization makes loans for working poor in many countries, including Armenia, Bolivia, Azerbaijan, Cambodia, Ecuador, Indonesia, Honduras, Mozambique and numerous other countries. In countries such as those mentioned above, a little bit of money can easily go a long way.
Microlending, like many other types of uninsured investments, is subject to numerous risks. However, based on past performance, the odds are still high that you will see your money again. Historically to date, 97 percent of all low income borrowers have completely paid back their microlending loans.
According to the Microplace General Manager, who is Ashwini Narayanan, Micro Credit Enterprises has a high return rate because there is a system in place for guarantees. The organization has wealthy individuals guarantee their investment, so even if the borrower defaults on the micro loan, the investor still is repaid. There are still some other risks to consider, however.
The people who manage in micro loans in other countries are often referred to as bankers on bicycles. They work with organizations on the ground in developing countries. They actually get on bicycles and ride out to the villages to meet with the borrowers directly every week. The interest that is paid by microfinance borrowers is around 31 percent on average. Microplace is a subsidiary of eBay, and is a for profit broker. They allow you to invest through your checking account or paypal account, and no extra fees need to be paid. When you sign up, you are showed a sample borrower scenario, but when you make a loan it is actually to an organization rather than an individual, and the organization distributes the fund to a number of different borrowers as a result.
Another microlending option is Kiva.org, which is a non profit organization. One of the biggest apparent differences between these two organizations is that Kiva does not pay any interest. Kiva is more of a peer to peer microlending service in that you are lending to one specific individual rather than to an organization.
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We need more of these organizations helping people all over the world – including the United States – change their staus in life. While these groups provide knowledge and financing – their success relys on the hard work and deidaction of both lenders/donators and of course the borrower.
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