I’ve always struggled with giving to charity. I wanted my money to have a large impact on people. The problem with charity is that it’s terribly inefficient, and rarely fixed the root problem (though The Gates Foundation may change my mind on this). If the goal is to help some 3rd world society, I feel like it was a waste of money.

Then I ran across Kiva.org and the idea of micro-loans. This is where entrepreneurs from 3rd world countries w/o credit systems need a small amount of money to get their business started. One example is a Kenyan woman who need $80 for an irrigation pump, and can now increase her income between $120 to $1200 a year. However, this woman could not get a loan without going to the village loan shark getting charged 100% interest.

Now on Kiva, you can loan money to this woman, change her life, and get your money back to help the next person.

Most investors worry about the risk of default. However, an interesting thing occurs. The other people in the village realize that if someone defaults on their loan, that no one else will loan the rest of them money. So there is a peer monitoring system and assistance within the community. This keeps the repayment rate over 95%, which is better than credit card portfolios in the US.

Typically it’s lack of credit which holds 3rd world countries back from bettering their standard of living. It’s not charity, but ideas like mico-loans is what will pave the way to a better world.