Pay-It-Forward Model Shows Potential for Microfinance in Developing Nations

Tuesday, April 12, 2016

Ten years ago, microfinance was celebrated with the Nobel Peace Prize for its potential to break people out of poverty. Today, the microfinance industry has grown to hundreds of institutions serving more than 150 million borrowers in the developing world, but is widely criticized for exploiting the world’s poor and, ultimately, making poverty worse.

The reasons for this are fairly straightforward. Many for-profit microlending organizations are more focused on expanding their reach and profits. These large organizations now often give relatively small loans with enormous interest rates – often upwards of 40 percent to 100 percent – which, along with other problems like inflexible payment schedules, effectively trap borrowers into a spiral of debt.

Now, leaders in the industry are searching for a better way to help the poor lift themselves out of poverty. One approach taken by a few organizations is to ask borrowers not to repay their loans in the standard way, but pay them forward to another person in need.

Thriive is a small organization founded in Sun Valley, Idaho, that has proved this model can work. The organization currently has programs in just five countries, providing donor-funded loans to small-business entrepreneurs in developing nations that are not repaid to the organization, but “paid forward” in the donation of services, products and job training.

Source: Humanosphere (link opens in a new window)

lending, microfinance