Purchasing Fair Trade products is one way to help end poverty around the world. There are a whole host of other ways, including charitable donations, but the latest and hottest trend is giving micro loans to impoverished entrepreneurs. It’s something I’m considering doing myself.
Micro loans are not new, but since Muhammad Yunus, a Bangladeshi banker, won the Nobel Peace Prize in 2006 for his work through his Grameen Bank, the concept has achieved cache across the globe.
Basically, micro loans are small amounts of money loaned to budding business people in impoverished parts of the world. The amounts can range from the tens of dollars to a few hundred dollars. The start ups can range from buying a cow for milking to purchasing a cell phone to provide communication services to a whole village.
Micro loans have helped thousands build sustainable businesses and escape poverty. The process is not without it’s critics, however.
A recent New Yorker article points out that there is evidence that the micro loans are helping individuals stay out of poverty, but are not helping to build a middle class — a necessary step for entire countries like Bangladesh to emerge from poverty.
This larger issue, say critics, is the so-called “missing middle.” Credit has always been available to the wealthy, even in impoverished areas, and micro loans are allowing the poor to become self-employed in their own microbusinesses. But credit is still scarce for middle class business people ready to build enterprises that employ others — business start-ups or expansions that require more than a few hundred dollars for a small factory, workshop, or storefront.
Though its perhaps important to note this ”donut hole” of need, it seems to me to be a red herring. Micro loans are designed to lift individuals out of poverty, not finance the next generation of employers. Programs should be created to extend credit to larger enterprises that will create sustainable work for the poor. Microfinance will not accomplish that goal.
Kiva is one of the largest and best known non-profit orgs where you can make micro loans online. Using their site, you can choose an entrepreneur and then help fund their loan request. As with many other microfinance programs, Kiva does not collect interest on their loans for the investor, you simply get the principal back to reinvest or withdraw. Another avenue is a direct donation to the Grameen Foundation which in turn provides micro loans.
Some Fair Trade organizations offer micro loan programs as well. A Greater Gift will provide your loan to their producing cooperatives to help them support their production, for example, by buying raw materials. There are also micro loans programs that will generate a small return for your money.
As with any investment there is risk involved, so do your homework before you pull out your credit or debit card.
Keep shopping your good values!
Kile
