Community & Current Events

How microloans starting at $25 can help change the world

How microloans starting at $25 can help change the world

Author: Canadian Living

Community & Current Events

How microloans starting at $25 can help change the world

Start at as little as $25
Got $25 to spare? Want to change someone’s life? Consider becoming a microlender. Lend money so individuals in the developing world can build their businesses. You get the benefit of helping people help themselves and the loan recipients get the capital they need to bring their businesses to the next level. In this context, that could mean anything from a $75 loan to buy chickens and feed to $500 to buy more inventory and install an awning on a tiny bodega.

Why microcredit loans help
Microcredit loans nurture small businesses, and therefore help develop local economies – and the road to self-sufficiency. It’s a concept that won one of its first proponents, Muhammad Yunus, founder of the Grameen Bank of Bangladesh, the 2006 Nobel Peace Prize.

Here’s how the loans work
First, you sign up with a nonprofit organization like, where you can donate as little as $25, using PayPal and a major credit card. You can scan potential loan recipients or filter by gender, region and business type.
Click on a potential recipient’s page and you’ll read their profile, see how much they need and how much they’ve raised, as well as peruse their biographical info, thumbnail business plan, loan history (past loans are a good sign, meaning they’ve got a good credit/repayment pattern), and see others who’ve donated to this project. Some of the recipients maintain journals, tracking their business growth, which can be interesting to read. Once they’ve received their loan and have started repayment installments, their project profile tracks their progress.

How the money is distributed
Once you choose to lend, your money joins that of others who have chosen this recipient (unless, of course, you go whole hog and ante up the entire loan amount they are requesting!). The money is pooled and distributed to the recipient through an accredited local microlending institution (or “field partner” in parlance) that charges them fair interest rates and collects the repayment. (Allowing field partners to charge interest is key to helping grow self-sustaining microfinance institutions and local economies.)

Page 1 of 2 – Find out the minor downsides to microloans on page 2.

How you get paid back
At the conclusion of the loan repayment, you’ll get your money back in the form of a PayPal credit. (Blow it on some shoes! Or, you could reinvest it in someone else’s project.)

Minor downsides
You don’t get a tax receipt
You won’t get a tax receipt since technically, this is a loan, not charity. Also, while the local field partner charges a modest interest rate, that’s not passed on to you. (Remember, the goal is developing local economies, and that includes local financial institutions.)

The recipient could default
If your loan recipient defaults, you’ve lost your money; however, this happens very rarely (applicants are screened on their credit history, the strength of their business plan, etc.). The default rate with, for instance, is a mere 0.2 per cent. You can reduce your risk by donating $25 to four people, as opposed to $100 for one person, if you’re worried.

All told, it’s a great option if you want to see the real people you are helping. (And your lender profile page is as fun to fill out as Facebook.)

Getting started with microcredits is a very user-friendly site and the website this author has been using. But other well-regarded microcredit sites operating on similar principles include:

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Community & Current Events

How microloans starting at $25 can help change the world