Microgiving: Close Cousin, Microlending

You may have something would-be entrepreneurs the world over desperately need: a little capital. Even as little as $25. You’ve probably never thought that such a meager sum could help expand a livestock breeding operation in Azerbaijan, put a systems engineer through school in Nicaragua or launch a hair salon in San Francisco.

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But thanks to the new world of online microlending, that’s what your $25 or $100 can do. Not alone, of course. Bundled with other investments at a handful of microlending websites, your money becomes a microloan — typically between several hundred dollars and several thousand dollars — for a borrower whom traditional lenders would pass over.

History

Microlending isn’t new. Some economists trace its origins to 1720, when Jonathan Swift, Irish author, satirist and pastor, started the Irish Loan Fund to provide collateral-free loans to the poor of Dublin. In the United States, the Hebrew Free Loan Society, founded in 1892 to help indigent Jewish immigrants, has provided interest-free loans, on a nonsectarian basis, to more than 865,000 borrowers. And then there’s Bank of America, founded in 1904 by Amadeo Giannini of San Francisco under the name Bank of Italy to cater to immigrants who were denied service by other banks.

The expansion of microlending in developing nations to help the world’s poorest people generate income and escape poverty was first championed in the 1980s by Muhammad Yunus, a Bangladeshi banker, economist and author of a new book, Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs. Yunus, who founded the Grameen Bank in Bangladesh to put his ideas into practice, received the Nobel Peace Prize in 2006 for his efforts.

For some time, microlending was almost entirely the domain of development banks and such huge international organizations as the World Bank and International Monetary Fund. But in 2004, the nonprofit organization Kiva pioneered the idea of using the Internet to join together individual investors and connect them with credit-seeking entrepreneurs around the world.

Next: 3 online microlending opportunities. >>