P2P Microfinance

Microfinance is the practice of lending small amounts, generally on the order of several hundred to several thousand dollars, to third world entrepreneurs. The idea is that these loans are used to build local business which in turn will improve the local economy. Microfinance received a lot of attention this year as the Bangladeshi economist Muhammad Yunus was awarded the Nobel Peace Prize for his role in promoting microfinance by founding Grameen Bank. Tyler Cowen of Marginal Revolution wrote a column in the New York Times earlier this year that serves as a good introduction.

Microfinance is not a new idea. Johnathon Swift (yes, that Johnathon Swift) seems to have been an early proponent of microfinance founding an organization called the Irish Loan Funds in the early 1700s.

Microfinance is something that I'd known about for a while, and it had always struck me as a good idea, but it never struck me as something I could personally affect. That changed when I found Kiva. Founded by a programmer while working at TiVo in 2004 Kiva partners with existing microfinance institutions to connect individuals in the developed world with entrepreneurs in the developing world. Through Kiva you can loan as little as $25 to a particular business. Your money is aggregated with the loans of others until the loan amount is met. I think this is a fantastic idea. Lack of financing is one of the toughest problems that any business faces and the problem is compounded for people in developing countries who want amounts so small as to be unattractive to traditional banks.

I think that I'd heard of Kiva before, but when reading this post from James Webster earlier this month I decided to get involved. Yesterday I took the plunge and made my first (small) loan to Juanita Lluvisela Ramirez Quintero. She is using the money to purchase inventory, so basically my money will serve as an external Line of Credit. I will post the updates I receive on this blog.