Microfinance: Propoor Nonprofits

There ARE ways of making microfinance work even without raising interest rates and truly serving the needs of the poor. One such example is EARN, a nonprofit putting microfinance to work for low-income Americans in the Bay Area. 100% of donors’ money go towards changing someone’s life and are matched twice, by federal grant and Earn Savers program.

Another nonprofit that I can personally ( as I am interning with them) recommend is Color Me In!, organization combining microfinance and tree-planting. Rural Zambian enterprise groups receive microloans for small business development that can be partly repaid by planting trees, 1 tree per 1USD borrowed. As a result, CMI not only empowers the poor, but also helps counter deforestation that has been plaguing the country for many years. CMI is currently raising $6000 to fund two enterprise groups in Zambia. One loan will help fish farmers expand their business, while another will go towards building a community school for 30 orphans. 90% of donations will go straight to support these loans, while 10% will be spent on communications and reporting over the next year. Finally, Color Me In! does not charge any interest rate on its loans in most cases, while in others lets the recipients define the interest rate themselves (which is usually 5-10%.)That is just one example of how smaller nonprofits without much publicity can have much more effective and transparent programs than their big media-loved counterparts.

Heifer International is an example of a different kind of microfinance organization. It gives microcredit loans in the form of domestic animals, such as cows, chickens, and goats. This way famers are not only able to feed themselves, but can also achieve stable income by selling surplus and breeding domestic animals for sale.

Another great nonprofit is Women For Women International that ultimately connects women-donors from the developed world with the women in need in conflict and post-conflict countries. Their Sponsorship Program has truly changed lives on both sides of the world, because as women in Africa, Asia, and Latin America benefit financially and become empowered, women in the US become inspired and happy that they are contributing to a greater cause. Not only a donor knows a recipient’s name, but can exchange letters with her that truly creates life-long relationships.

I was planning to include Kiva.org in my list of microfinance organizations, but, first of all, it doesn’t need much introduction as a top peer-to-peer microfinance organization and, second, I was not satisfied with the interest-rate they charge their recipients: average interest rate among Kiva's partners is 38%. Kiva, no doubt, does create change, yet it could have been much more effective and less bureaucratic.

In the end, the hardest part in identifying effective and transparent microfinance nonprofits is that most of them do not openly state their interest rates and, thus, you have to do an in-depth research. Doing and donating to charity work is not enough, effectiveness is the key if you want to create the most change for your money.

My next post will cover social business as coined and defined by Muhammad Yunus and that may be the long-awaited answer to aid effectiveness.