These investments won't make me wealthy, but I'm nearly certain to get my money back. I won't earn interest on my Kiva investment but MicroPlace is promising a 3 percent annual return. Admittedly, that's not much, even compared with a bank CD. But the big reward on these investments is knowing that they can make an enormous impact on the lives of the borrowers and their communities.
These two Web sites are enabling ordinary people to participate in microfinance - a system where entrepreneurs from the developing world borrow small amounts of money - sometimes as little as $10, to build sustainable businesses. The borrower could be a street merchant in need of a pushcart, a craftsperson who needs a sewing machine or a farmer who needs to buy seed or animal food.
You've heard the story - "give a man a fish and he eats for a day, give him a fishing rod and he eats for life." In this business model, you lend him money to buy the fishing rod so that he can fish, sell his fish, hire an apprentice and repay the loan.
MicroPlace, which launched October 24, is a wholly owned subsidiary of eBay. The credibility of eBay affiliation is one of the reasons I felt good about investing through the company. You can invest as little as $100 and your return and length of investment will vary depending on where it is going.
MicroPlace works through community organizations based in the borrowers' countries, according to founder and General Manager Tracey Pettengill Turner. These organizations have loan officers who travel the region - sometimes by bicycle - to make loans and collect payments. Because each group has a diversified portfolio of micro-loans, the risk to the lender is spread out. In some cases, socially responsible mutual fund companies such as Calvert, help get the funds to the local organizations.
Kiva.org is more of a peer-to-peer investment organization. When you go to its Web site, you select the actual person who is borrowing the money and you can loan as little as $25. Loans, according to the site, "are personal agreements between lender and borrower" and you do not earn interest. The Web site reports that "to date, Kiva.org's repayment rate is 99.72 percent."
Kiva is a non-profit organization while MicroPlace is a licensed broker dealer. Achieving that broker dealer status, said Turner "took us over a year." While eBay is helping them at this stage, MicroPlace's goal is to eventually turn a profit and reinvest those profits in other socially responsible ventures. Turner says that sustainability at all levels of chain is an important part of the microfinance ecosystem.
Everyone, from the lender to the borrower and any organization in the middle, needs to benefit from the relationship for it to be sustainable.
One nice thing about Kiva is that you can give gift certificates. You could, for example, give a child $25 to loan to a project of his or her choice. The child wouldn't earn interest but would get the cash or opportunity to reinvest when the loan is paid. The child can log into his or her Kiva account to follow the borrower's progress and track repayments. This strikes me as an excellent learning experience.
One obvious advantage to being a lender rather than just a donor is that you are likely to get your money back (UNESCO reports that, 97 percent of microfinance loans are repaid). I look at this as an extension of charitable giving. There is only so much most of us can afford to donate to charity, but we can extend what we can do with our money by investing in projects that will help lift people out of poverty. And with minimum investments as low as $25 to $100, most working people can afford to participate.
That said, donations can play an essential role in helping people in developing countries.
GlobalGiving.org connects donors to pre-screened charity projects around the world. You can pick a project and see exactly what your contribution will buy. For example $50 will purchase 25 energy-efficient compact fluorescent light bulbs for low-income families and $12 will provide a Uganda clinic with HIV testing and counseling for three people.
GlobalGiving Chief Executive Dennis Whittle said: "There is no silver bullet in development and poverty reduction. Some things can be funded through microcredit and others need grants." To be successful, Whittle said, people need such basics as health care, clean water, education and transportation. The Web site lets you pick a project and see the results of your donation.
Whether you donate or invest, contributing to microfinance does more than just lift people out of poverty. It also lifts their spirits, according to Carol Realini, CEO of Obopay and a former board member of GlobalGiving.
"You're not just giving them money," she said. "You're giving them emotional support by trusting people and providing them with support and business consulting as well as dollars."
A syndicated technology columnist for over two decades, Larry Magid serves as on air Technology Analyst for CBS Radio News. His technology reports can be heard several times a week on the CBS Radio Network. Magid is the author of several books including "The Little PC Book."
By Larry Magid