Using Microcredit Loans as a Teaching Tool

In our society, entrepreneurship is about as close as we can get to a magic elixir. The premise that someone can conceive of an idea, build a business from the ground up with tools such microcredit loans, and create wealth unimagined of before has astounded our society.

While politicians love to explain that they create jobs, students of history know that new and small businesses create jobs. The hard work and perseverance of individuals build business and hire employees. These entrepreneurs are struck by “crazy” ideas and have the will power to see their ideas to fruition. It is not an easy thing to be an entrepreneur. I would know – I started my business, Greenleaf Book Group 17 years, when I was only 22 years old and it has taken many sleepless nights and the efforts of countless people along the way to turn the business into what it is today.

The beginning – when I was trying to get up and going and knew so little about the industry I was attempting to break into – was particularly challenging. Most people would have written my ambition off as foolishness. (I’m not going to lie; there was a lot of foolishness mixed in with the ambition.) But I was fortunate to have the support of my family and friends in pursuing my goal.

Not everyone is as lucky as I am. They either lack the personal support, cultural context (we are lucky to come from a place that rewards creative thinking and individual action), or access to capital to get a bright idea going. Founding and building a successful business changed my life, and allowed me to support my family and employ scores of people. We contribute to our community and to the local economy. I believe the world is a better place when people who are struck by a similar “wild” idea and the inclination to execute are allowed the opportunity to do so.

This is why I am a passionate proponent of a company called Kiva. Kiva is a non-profit that acts as an online lending platform for microfinance on an international scale. “Microfinance” sounds complicated but it’s actually quite simple: providing financial services to the poor. Kiva focuses specifically on supplying loans. In Kiva’s terms, this means connecting lenders with beneficiaries. Beneficiaries are aspiring entrepreneurs in developing nations who apply for loans. They write up a small profile of themselves and a basic business case outlining what they will do with the loan. The size and intent of the loan change. Some requests are small, $100 to buy a smokeless stove. Other are larger, maybe a few thousand dollars to expand the inventory in their store.

The beneficiaries are identified by local Kiva Field Partners who help write up the case and create a schedule for paying the loan back. Kiva works in developing nations, even places that we might perceive to be very risky, such as Iraq or Cambodia. As the lender, you get email updates about the project and, when the loan has been fully repaid, you receive the money back as a “Kiva credit” in your account. You are then free to lend the money to another applicant, donate it to Kiva, or withdraw it. Impressively, Kiva boasts a 98.86% repayment rate on $579,791,975 in loans.

The repayment rate I have personally seen has mirrored this. My family and I have made 4,000 loans over the past few years and had a 98.8% repayment rate. Not only do I love the idea of funding people who have the drive to jumpstart their professional lives and local economy, but the sense of personal connection is also unique. In most philanthropic donations, I find my money going down a black hole, but in this case, I know exactly how it is being used and by whom. Since you can pick all sorts of details, I have weighted my loans heavily towards Ukrainian borrowers (I’m half Ukrainian) and also towards food based entrepreneurs. You can search for loans by women in Africa who are looking for loans for retail businesses – then further select based on profile information. The almost personal connection is fun to build, and helps you see the magic of putting money to work.

Beyond the incredible niche Kiva fills, the organization has the added benefit of being a great teaching tool if you have kids. Explaining investing can be tough, but Kiva makes the idea tangible. Your kids can get practice evaluating investment opportunities. How risky is the loan? What is the potential for growth? Kiva does some of this analysis for you, guiding your kids through every angle of the investment they need to think about by providing the numbers. While you won’t earn any interest, the loan is still repaid and then recycled as capital for other loans.

Kiva even offers Kiva Cards that you can give as a gift. I believe these make a great present for your older children (maybe even a teenager). While you choose the amount they will give, there is no limit on how many or to whom the loans are allocated. Even better - your child can manage the entire system on their own. Lets say you give a gift of $100 (four loans) to your child. They can pick the loans and watch the progress. If they pick good borrowers and get fully repaid, they can lend that same money again.

Through an incredible partnership with PayPal, you can send $25 directly to your account and all of it (yes, 100%) goes to the borrower. PayPal donates their commission on the transaction back to Kiva, and Kiva does not take any fee per loan. They do ask for a donation, but it’s the donor’s choice whether or not to give. (I respond well to this sort of optional giving – they always get more from me this way.)

If you are interested in getting involved with Kiva, check out their site here.

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