Tough Economy? Try Microlending

With the economy in the shape it’s in, now is as good a time as ever to check out the popular practice of microlending. Instead of investing your money in the stock market or real estate, earn interest by helping others. Microlending involves loaning small amounts of money to individuals who are impoverished – often people who are unemployed, entrepreneurs without any money, or people living in poverty. Because of such circumstances, these individuals are not considered bankable, and do not have access to funding sources through traditional methods such as loans or credit.

DEFINITION:
The purpose of microlending is to help such individuals lift themselves out of poverty by building a sustainable source of income. It’s been used as a tool for socioeconomic development, especially in impoverished countries, for decades.

So, how exactly does microlending work?

The Internet has expanded the horizons of microlending, with sites such as Microplace.com and Kiva.com springing up to help people globally. Families around the world struggling to make ends meet develop entrepreneurial business plans or seek to enhance existing forms of income. Selling produce, clothing, or craft items are common practices. The person making the loan determines the amount to be lent, which is then distributed by a local financial partner. Once the borrower has made enough money to pay the lender back, the lender receives their full amount back. In some cases, the lender also receives interest. The borrower must pay a relatively high interest rate, but microlending is one of the only financial services the borrower may have access to. With interest rates tumbling, the 1.25 to 3% interest rate Microplace offers starts looking better and better. Kiva doesn’t offer interest to the lender, but it does allow you more control in determining which entrepreneur receives your loan.

Additionally, microfinancing isn’t as risky as one might think – repayment rates typically range from 97 to 99.8%. In these unstable times, low-risk investments may be just what we need.