Investing in people: microcredit and

Inspired in equal parts by Greg Cohn’s experience with and the awarding of the 2006 Nobel Peace Prize to Muhammad Yunus and Grameen Bank for their work in micro-credit, I decided to make a couple of small loans to enterpreneurs in the developing world. For those who are not familiar with the concept of microcredit, Wikipedia offers this description:

Microcredit is the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not bankable. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimum qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is the provision of financial services to the very poor; apart from loans, it includes savings, microinsurance and other financial innovations.

I made two small loans today using, which makes the process really simple:

  • One to a 43 year-old woman in Kenya to invest in her crafts business
  • One to a 42 year-old woman in Kenya to invest in her dairy business — mainly to buy two cows and feed.

For more about, read the FAQ. I’ll post later about how my loan portfolio is doing, though the repayment window is 10-18 months for the loans I extended, so it could be a while (one key note: these are no-interest loans, so it’s not a money-making opportunity). Kiva claims that their repayment rate to date is 100% and data from the United Nations Capital Development Fund say that the worldwide repayment rate for microloans is 97%. Even if you’re the cynical type, this seems like a good bet.

As the Nobel Prize press release says, “Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.” This is definitely a compelling use of the Internet.

Update: my good friend Andrew Leonard offers his take on Kiva in his Salon blog, How the World Works: “Do it yourself microfinance.” I am routinely astonished by the world as it emerges before me, but wrapping my brain around do-it-yourself microfinance has been one of those moments where I feel the earth move under my feet.

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