by Kallie Szczepanski

Created on: April 16, 2008

Sometimes, all the working poor of the third world need is a tiny loan to lift themselves and their families out of poverty. It can be tempting to offer money to the struggling people you see while traveling, but it's better to lend money through official channels. One good strategy is to participate in a microlending organization.

Traditional banks have always shied away from lending money to the poorest people, since such borrowers have no collateral to offer, no credit record, and little income. Today, though, people throughout the developing world are receiving loans from as many as 7,000 different institutions that practice microlending.

The loan money is designated for small-business development, whether that is opening a little village grocery store, buying a cow to sell the milk, or buying a cell phone for use as a wireless pay phone. Most microlenders give the vast majority of their loans to women, as study after study has shown that they are far more likely to invest the money in pulling their families out of poverty than men are. Borrowers pay back the loans with some of the profits from their new enterprises.

Different microcredit organizations have somewhat different business plans. Some are simply banks for the very poor, such as the Grameen Bank in Bangladesh.

Others operate on a person-to-person basis. Kiva.org, for example, allows individuals to provide funding to borrowers in the third world directly over the internet. The minimum loan is $25. To participate, you simply log on to their website and browse the would-be borrowers. When a particularly face or project grabs your attention, you can make a loan to that person from your computer. They pay back the loan (Kiva keeps the interest), and you can then relend or retrieve your original investment capital.

Kiva's person-to-person lending model allows the organization to operate with lower overhead than the bricks-and-mortar bank model, reducing somewhat the interest rates it charges.

Microloans are an excellent tool for alleviating poverty in the third world. Microcredit empowers women, encourages the growth of small businesses, increases family incomes, and helps the next generation receive an education. The ripple-effects from the work done by Grameen Bank, Kiva.org, and thousands of other lending organizations will continue to improve life for the world's poorest people for decades to come.

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