Seattle may shape “Microfinance 2.0”

Wednesday, August 2, 2006

Excerpt: It’s not hard to understand why the idea of microfinance appeals to technology entrepreneurs like Kintan Brahmbhatt.

Making tiny loans to help very poor people start businesses fosters entrepreneurship, he said.

Brahmbhatt, a Microsoft program manager, is convinced this innovative approach to dealing with poverty has the potential to change the world. He’s become an advocate for microfinance at the company, in the Seattle area and in his native India.

With its technology wealth and spirit of social activism, Seattle is a focal point for global microfinance initiatives such as Global Partnerships, Unitus and the Grameen Technology Center, each of which was represented at a lunch briefing on the subject Tuesday in Seattle. The Bill & Melinda Gates Foundation is also becoming more involved.

The Seattle efforts may help to bring microfinancing to a new level, one Unitus Chief Executive Geoff Davis calls “microfinance 2.0.”

Until now, the more than 3,000 microfinance institutions around the world have been supported mainly by donations. They reach about 92 million people with loans, but there are hundreds of millions more who could benefit from credit.

Microcredit programs grant loans as small as $30 to help the working poor build small businesses such as operating stores, making baskets or raising animals.

Women are the primary borrowers, and they have a repayment rate of more than 95 percent, according to the Grameen Foundation. That’s higher than the repayment rate of student loans and credit cards in the U.S.

Moving to a model based on investment could greatly expand the pool of money available for lending, Davis and others say.

“The pool of people willing to donate is not large enough,” said Global Partnerships Chief Executive Bill Clapp. “I’m not so sure donating money is the right answer. But if I get it back, I know the system works.”

Microfinance institutions are starting to reach out to investors, banks and corporations. They offer a modest return on investment, some averaging 5 to 7 percent, and a way to use money to make a social impact.

“The potential for change, for transformation, is too great to let it expand at a petty pace,” said Sam Daley-Harris, director of the Microcredit Summit Campaign, a Washington, D.C.-based organization aiming to give credit to 100 million of the world’s poorest families.

Source: The Seattle Times (link opens in a new window)