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How Has Microfinance Changed Since 2005?

| Friday February 26th, 2010 | 4 Comments

five year anniversaryMicrofinance, something now fairly common and even mainstream in 2010, was a novel concept when we first wrote about Kiva in 2005. At that time, you could only lend to people in Uganda. Now you can lend to people around the world, and in a clear sign microfinance has moved beyond being only about helping those in developing countries, it now includes North America.

Entrepreneurs needing funding is a universal thing, it seems.

The model has shifted since then, in useful ways:

At the time loans were made by one person, to one person, for an average of $500. A relatively small amount, but still a hurdle for the everyday person, a definite commitment of funds that could have proved a speed bump on the way to someone deciding to do it.

Now the minimum is $25, a part of sums that are at times in the thousands. A loan now happens every 12 seconds. This week, just under $1.6 million was lent, and 3522 new lenders joined. Smartly, Kiva now encourages lending as part of lending teams, often clustered around interests or regions.

Though $25 sounds modest and that it would take a lot more time to accumulate to useful amounts, as the recent huge success of the $10 text message based Red Cross Haiti relief fundraising effort shows, small can clearly add up to substantial amounts.

Although the debate continues as to whether microfinance as it’s currently done is actually beneficial, one idea has taken root: that helping people in developing countries need not only happen via large sums of money administered through bureaucratic entities such as charities, and it can be an empowering, rather than codependent activity.

Perhaps inspired by the success of microfinance elsewhere, funding of entrepreneurial ventures in the U.S. is steering away from the typical bank/VC driven models,  now increasingly happening through creative, more personal, and ultimately, more sustainable models.

When your business does not have to conform to what a bank considers fundable, and have the aim to profit quickly, sell the business rapidly, there’s more room for truly integrative bottom line business to occur.

Readers: What’s your take on microfinance and its effectiveness? What other avenues of creative, effective financing are you seeing out there? Please share, below.

Paul Smith is a sustainable business innovator, the founder of GreenSmith Consulting, and has an MBA in Sustainable Management from Presidio Graduate School in San Francisco. He creates interest in, conversations around, and business for green (and greening) companies, via social media.


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  • http://www.eyeflare.com/ Jack

    $1.6m? That's really an astounding sum for a week of micro-lending. Thanks for the update on this, it's why I keep coming back to the site: Good articles!

    • Paul Arthur Smith

      I know! I was amazed to see that as well. Go on Kiva's site, look on the left side, where it says Impact This Week. There's a rolling list of stats for the week kiva.org

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  • http://microfinancehub.wordpress.com/ fehmeen

    This is the first time I've come across the impact Kiva has had based on numbers, so thanks. As for the questions, I do not doubt the power of microfinance in changing lives for the better. But this doesn't happen every time. I'm just being realistic here; a tool can be both beneficial or harmful depending on how it's used. My biggest problem is the status of borrowers when they default. They often get shunned socially (thanks to the group lending idea) and get pushed further into the throes of debt with time. I think a penalty fee should be imposed for late payment, but it shouldn't increase with time.

  • http://microfinancehub.wordpress.com/ fehmeen

    This is the first time I've come across the impact Kiva has had based on numbers, so thanks. As for the questions, I do not doubt the power of microfinance in changing lives for the better. But this doesn't happen every time. I'm just being realistic here; a tool can be both beneficial or harmful depending on how it's used. My biggest problem is the status of borrowers when they default. They often get shunned socially (thanks to the group lending idea) and get pushed further into the throes of debt with time. I think a penalty fee should be imposed for late payment, but it shouldn't increase with time.