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Microfinancing, the loaning of small amounts of money to the asset-less poor, garnered worldwide attention last year when one of the leaders in this emerging field, Grameen Bank, and its founder Muhammad Yunus were awarded the Nobel Peace Prize.
Microfinancing reaches out to a massive economic underclass that has been shunned by the international banking and lending system by providing necessary seed capital for small ventures.

It may seem intuitive for some to believe it foolish to loan money to a person with no assets and seemingly little prospect of converting that loan into a profit and repaying it. Grameen Bank has proven that belief to be very wrong indeed. Grameen sees a default rate of only 2% on its small loans to the poor. Compare that to the 4.5% default rate on student loans within two years of beginning repayment in the US. The low default rate vindicated Grameen’s simple founding principle, that “the poor will repay loans.” The reliability of the poor to repay has also helped to make microfinancing economically viable for lending institutions in a competitive free market. In short, microfinancing has been one of the huge successes of social-capitalism.

What has propelled Grameen beyond vindication and to the Nobel Prize is that the vast majority of loan recipients have used the financing to reliably generate assets. Many borrowers, for instance, have started businesses selling phone services in their remote villages. Take the story of Sophia Nalujja (photo reprinted with permission of Grameen Foundation) of Uganda. She
has been a successful borrower from the Grameen Foundation in Uganda for many years, has started a couple businesses and more than quadrupled her farmer’s income. Stories like Sophia’s abound as
microenterprises represent an estimated 80% of total enterprises and 50% of urban enterprises in developing countries, where they are the main source of jobs for poor people.

You, too, can become a microlender at Kiva.org. Kiva provides an easy way for you to connect directly with microenterprise entrepreneurs all over the world. Photographs and thorough descriptions of the loan’s purpose make it fun to just surf around and see what people are doing to improve their lot in life. A typical Kiva loan is for right around $1,000 give or take and you can contribute as little as $25 to any project you wish to fund. Re-payment typically takes one year and you’ll receive a little interest on your investment or you can choose to make your money a gift to the entrepreneur.

Update: Our sister site Planetsave makes micro-loans a part of how they do
business, GO founder and Planetsave publisher Shea Gunther explains the
details here.