Social Investing & Microfinance: A Little Goes a Long WaySubmitted by Butera Wealth Management, LLC on June 12th, 2019
A Mexican immigrant, Victor worked for a coffee shop in the U.S. for 7 years and then tried to start his own shop. Turned down by conventional lenders due to a lack of credit history, he obtained a $5,000 loan from the microfinance organization Kiva.org. Five years later, he now has three thriving shops. Mukula was a child bride in India; then she used a $570 loan to start a weaving business that now employs herself plus two full-time workers and her husband part-time, helping to support their two boys.
Victoria was a subsistence farmer in Zambia, living in a mud hut with her four children, when the organization Good Nature Agro provided her with seeds and training on how to grow and harvest more profitable crops. With the additional income, she has been able to build a new home for her family, build a second home for rental income, and hire up to 15 people from her village.
All three of these success stories are the result of a relatively new funding approach called Microfinance or Microlending. The idea is that low-income and disadvantaged people—especially women, and those in third-world countries—don’t qualify for or have access to traditional sources of funds such as bank loans and credit cards. But all they need is a small boost to help them start businesses that could support themselves, contribute to the community, and help lift their families out of poverty.
The idea first arose in the 1970s and since then multiple non-profit, government, and private microfinance organizations have sprung up around the world. Some of them are described in this article. The idea came to mainstream attention in 2006, when the Nobel Peace Prize was awarded to Muhammed Yunus of Bangladesh, who, working with Grameen Bank, showed how microfinance could be a tool to combat poverty.
In some cases, microfinance has even become big business, with funds like Grameen America having disbursed more than $1 billion in the last 10 years to help women entrepreneurs get a leg up, and even some of the big, traditional investment firms getting involved. For example, in 2016 JP Morgan Chase dedicated $5 million to a microloan program focused on communities in the Southwestern U.S., and Deutche Bank now offers microfinance/social investment funds as part of their portfolio.
For a more direct approach, the website-based Kiva.org allows people to contribute as little as $25, which is then pooled with funds from other micro-investors to give loans to entrepreneurs around the globe. While long-term results of microcredit programs has not proven to be as transformative as first hoped, nevertheless, the overall benefit to poor families (those whose incomes have been $2/day or less) in terms of financial stability has been proven.
As with any investment, there is risk and no guaranteed return when you participate in microlending. This article discusses some of the details, pros and cons of the microfinance industry. But if you’d like to see a bit of your money making a difference in the world, microfinance investment is one option to consider.
NOTE: This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Louis Butera to provide information on a topic that may be of interest. Copyright 2019, Louis Butera Wealth Management, LLC.