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Introduction.

I guess it was only a matter of time before Mohammed Yunus’s Nobel Peace Prize in economics, for his pioneering work in micro-loans, – started to draw attention from the big banks and finance houses. The problem is quite simple really, what started out as a system whereby one person lent a relatively small amount of money to someone else for the purpose of, say, improving their sewing business in a developing country – has blossomed into a $60 billion a year loans industry.

Micro-Loans in the beginning.

As mentioned above the idea of micro-loans was originally very straightforward and low key. Rather than leaving any spare cash you had in a bank, instead you made micro-loans to individuals or small organizations and  businesses – who when they then repaid your loan had to pay a small amount of interest; often as little as 10% and way below commercial loan interest rates but generally higher than savings interest rates too. This made the micro-loan business more akin to a charitable system than a business one. However, to the people making the loans that didn’t matter as, by and large, they were as interested in their money doing ‘good’ as they were in turning a profit.

Micro-Loans today.

A loan for a very small amount of money into a sewing business for a machine, can transform someone else’s business life.

Fast forward a few years and the demand for micro-loans now by far out-strips the supply. Yes there are a lot of people out there that want to ‘do good’ with their spare cash; but there is only a finite supply of it. Needless to say the big banks and finance houses are stepping in to fill the void, ever keen to turn a dollar and even if it is to a high risk venture in somewhere like Nigeria. The sad part of this is, however, the interest rates that they are choosing to charge. No longer set at the charitable 10% – some of these big banks and finance houses are charging as much as 100% interest to high risk projects – as bad as if the borrower had gone to a loan shark. Ironically, they’re saying the high interest rates are because of the high demand for micro-loans in the first place! If you have some spare cash but do need to make a small profit on it and yet are basically of an altruistic nature – then providing micro-loans is something to consider. To get involved in micro-lending, look for a social lending website that is transparent about giving loans to poorer people to help them – rather than to just simply make a profit out of them.

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