Hammer on Anvil '

In the past week, I’ve been reading a fantastic book called 7:An Experimental Mutiny Against Excess by Jen Hatmaker.  There will likely be more posts regarding this book in the future.  For now, I’d like to introduce you to one of the spectacular concepts she shares in her book.

I was oblivious to this concept, but perhaps you’ve heard of it before – it’s called microlending.  Basically, it involves giving a loan to someone in an impoverished country in order to help them build a business and therefore increase the wealth in their community.  There is not much wealth in these countries to begin with, so it can be difficult to get a loan, especially since borrowers have no collateral to offer.  Microlending helps them get a loan anyways and helps them build wealth and collateral.  Brilliant.

As Hatmaker shares, “The poor don’t lack ambition, imagination, or intelligence; most simply lack resources.  We have what they require and more than we need.  We could share.”

There are several websites that participate in this endeavor, but many of them share an unfortunate flaw.  The money that you loan doesn’t go directly to the person who needs it.  Instead, your money is given to a bank which then lends it to the borrower.  This in itself is not bad, but while your money is offered to the bank for zero interest, the bank DOES charge interest to the borrower.  And those interest rates can be pretty ridiculous – like 30% to 40% ridiculous.  Needless to say, this carves away at the profits that the borrowers could be making and negates the effect of helping them climb out of poverty.

Luckily, there is one website I’ve found that cuts out the middleman – Zidisha.  It connects actual people in impoverished countries who need loans with actual people who have the means to help them (you!).  The people who need loans can apply to Zidisha directly.  They get a credit check from a local bank and, once approved, post their need on Zidisha.  They choose what they feel is an acceptable interest rate (usually well below the local standard) and if you decide to help fund them, you can offer your money at that interest or less.  You can even offer them your money at zero percent interest if you feel so inclined.  Oh!  And because there is no middleman, you can actually connect with the person borrowing your money.  You can ask them questions about their business and they can post updates.  Awesome!

Of course, with any investment there is a level of risk.  What if the borrowers don’t pay the money back?  Well, if that unfortunate event happened, you would lose your money.  However (and these two points are important), Zidisha has a 98% repayment rate and you can lend as little as $1.  My wife and I have decided to give Zidisha a try and in order to minimize our risk, we’re planning to invest smaller amounts but to invest in several borrowers.  We’ll start small to see how it works in practice and go from there.  I’m excited to see this money (that would normally be sitting in an American bank helping some banker earn money to put a down payment on a yacht) affect real change in real people’s lives.