A Little Money Goes A Long Way

Friday, July 21, 2006

Excerpt: Ann Brown and Maria Martinez have never met, but last March Brown loaned Martinez $50. It was part of a $400 loan Martinez needed to get her clothing store up and running in Danli, Honduras. She used the cash to buy colorful hairbands, bright shirts, frilly button-downs, and baby onesies. Sales have picked up, and now Martinez is paying Brown back in monthly installments via the Web site on which they found each other, Kiva.org. “When I was starting my handbag business, a neighbor wrote me a check for the startup capital,” says Brown, who sells bags at the Pike Place Market in Seattle. “I had nothing, and that made it possible for me.”

Friends and neighbors have been lending one another money forever, but as the Web makes virtual neighbors of strangers, Kiva, which is Swahili for “agreement” or “unity,” is harnessing the power of social networking to support microenterprise in the developing world. From Honduras to Uganda, microfinance institutions post MySpace (NWS )-like profiles of people who need capital to start or expand their businesses. Then lenders — aka you and I — can sift through pages of business ideas and grant loans in increments as tiny as $25. PayPal (EBAY ) processes the transactions for free, and lenders receive monthly repayments. The lender is out the money if entrepreneurs don’t pay up, but microcredit has earned a reputation for high payback rates. In the five months since its launch, says Kiva, the site has had no defaults. It has processed $200,000 in loans, disbursed among 450 entrepreneurs.

Source: Business Week (link opens in a new window)