When we college kids have extra money lying around, there are plenty of things we’d like to spend it on. If it’s Thursday through Sunday, a handle probably tops the list, followed by a fancy dinner out at Chiptole, a new CD, a day trip to Chicago or maybe a new sweater. Helping the poor is probably pretty low on the list, coming in just above buying that one textbook that was sold out at Beck’s. But with the rise of microfinance and the launch of online microfinancial lenders such as MicroPlace, charity just might look a little more appealing.
Microfinance is a shockingly simple model where ordinary philanthropists can give loans to poor individuals who wouldn’t otherwise qualify for them. The average loan is only $70 (hence the “micro” part) and goes to poor people in developing nations to aid them in starting a business. The movement is attributed to Muhammad Yunus, a Bangladeshi banker, economist and former professor who won the Nobel Peace Prize before Al Gore. In an e-mail interview, Northwestern economics professor Lillian Kamal said that Yunus began to formulate his ideas of microfinance when he realized the theories he was teaching in Bangladesh weren’t helping the hungry people all around him.
“He and his students went on a fact-finding mission, and found that each poor person did not want for huge amounts of money,” Kamal said. “All they wanted was small amounts to help pull themselves out of poverty.”
After a bank refused the tiny loan requests (why give a loan without collateral to a group perceived as not creditworthy?), Yunus founded the Grameen Bank, where microfinance took off. Grameen, which means “village” in Bangla, has spread to more than 40 countries and has helped more than 6.6 million borrowers.
The launch of MicroPlace, though, means that even the lender benefits. While most microfinance institutions are non-profit, the eBay-operated site allows users to make from one to four percent on their loans. The small nature of the loans means the interest would hardly make a blip on your bank statement, you still have the opportunity to make a few bucks and help others at the same time.
The simplicity and benefits of microfinance have helped it grow in popularity. Kamal, who researches microfinance, said it was increasing in popularity because it’s easy to replicate, free of bureaucracy and good for women (most of the loans go to women, who can gain independence from oppressive husbands while lifting themselves out of poverty). Even more, its helps the poor without giving them a handout; the fact that they’re starting a business — anything from basket making to construction that gives them potential for long-term success with dignity. As it spreads to the Internet through MicroPlace and similar sites such as Kiva and MixMarket, it’s only becoming easier to give aid.
Internet microfinance also adds a hands-on element. More important, though, Kamal said, is that these sites show people exactly how their money is being spent.
“Accountability is a great friend of sustainable funds collections,” she said. “If a donor could see how the loan was being put to work in a specific example, and understanding who and what kind of small business is being helped by their donor dollars, this will encourage the process even more.”
For students low on time and even lower on money, microfinance offers an intriguing outlet for charity. After all, the whole thing started in a classroom with student help. You can give a loan as small as the price of a ticket to Bee Movie (the loan is a way better option) without leaving your room, then get the money back (potentially with interest) with the satisfaction that you’ve helped someone. It’s kind of like being Bill Gates, if Bill Gates worked with figures with fewer than six zeroes and asked for the money back. Also, going through a site like MicroPlace allows you to be connected the the people you are helping in an online community, offering a more constructive alternative to Facebook and a less creepy alternative to MySpace.
Even if you’re not directly participating in it, Kamal said taking classes on microfinance(Northwestern occasionally will occasionally offer one), interning at a microfinance institution or just learning about the trend can help the world — if you’re into that kind of thing.
“It is a shame in this day and age of technological advancement that there are people dying from starvation, and who are deprived of the requirements of daily life. It is our generation’s responsibility to turn this around, and students are a key link in this process,” she said. “When students learn about microfinance, and other social entrepreneurship schemes, they are armed with a very powerful tool.”