I blogged before about how microfinance appears to be a safe haven during these times of economic collapse.  While there are some potential risks (I’ll get to those later), it’s still holding strong and still repaying investors without increased default levels, despite all the chaos happening in the markets.  Why is this?  It’s because the credit markets made loans based on asset values without looking at the person who was taking the loans – giving a $750,000 loan on a NINJA (No Income, No Job, and no Assets), for example.  Microfinance, on the other hand does not make loans based on asset value, but on character of the borrower.

When a poor woman takes a microfinance loan, she usually doesn’t have any assets to secure the loan besides the work living in her hands, the brains in her head, and the determination in her heart.  She’s poor and she may only own a chair and a couple of pairs of clothes so what assets could she use to secure a loan?  So she has to find five friends who will vouch for her.  More than this, these five friends have to become a group where they all take loans and guarantee the loans for each other.  If you were her, which friends would you pick?  The lazy one who never seems to pull through for you or your most industrious friend?  And if you were taking a loan and you knew that your five friends, who you see every single day when you walk to the village well, would have to pay your share if you didn’t make your payment, how hard would you work not to let them down? 

(more…)

A billion people want a loan so that they can help themselves out of poverty.   Even though microloans are small - $20 or $100 or maybe even $1,000 - that adds up to a whole heck of a lot of capital in total.   Here is a clip of Tracey, MicroPlace founder, talking at a recent conference about where we can get that capital.

MicroPlace has a heck of a lot of options out there for where to focus your dollars to enable a loan.  Fantastic, no?  But how do you choose between helping women in Ghana and helping women in Cambodia?  All these choices can be a little overwhelming, no?

Well, no need to make that decision any more (pfew – if you’re like me, that leaves only 39,273 decisions left for today).   MicroPlace has introduced a couple of investments which, are great if you are passionate about an issue that cannot be confined by mere geo-political boundaries.  We are adding more all the time, but we currently have four: (more…)

If you have been following microfinance lately, you know of the roaring debate that has been going on.  Compartamos, a Mexican microfinance lender that went public in April 2007 with 900,000 borrowers symbolized one end of this spectrum with a pro-market approach.  When ACCION, an early investor in Compartamos turned its $1M investments into $140M in the IPO, Wall Street said, “hello microfinance!”  Muhammad Yunus, known as the father of microfinance, came out on the other side and warned that profit-oriented microfinance could lead us away from our social mission.  He pointed to the rumored 70-100% per year Compartamos borrower interest rates and $80M in profits and argued that microfinance is about protecting poor people from unsavory moneylenders, not creating new ones. 

So what does this mean for the everyday investor?  Is microfinance all messed up and should we all just invest in plain old mutual funds instead? 

(more…)

The big concern about today’s financial crisis is not that investment bankers may lose their jobs, but that it may spill over to Main Street.  People worry that if all the banks are collapsing or hoarding capital so that they won’t collapse, who is going to lend money to businesses?  Businesses need capital so that they can do what businesses do best:  make profit and provide jobs.  Without capital to grease the system, the core fundamentals of an economy, well, just freeze up. 

Well, that’s what it’s like every day of the year in the urban slums of Bangalore, Manila, and Rio. You see, without basic capital, just as our economy shuts down, so does theirs.  Without a little bit of capital, shop owners can’t buy inventory, tailors can’t afford a new sewing machine, farmers can’t afford fertilizer.  (more…)

Jack Hough at SmartMoney did a segment about MicroPlace.  Check it out:

Jack Hough of Smart Money talks about MicroPlace

There’s been a heck of a lot of news lately that has the same theme: Wall Street is melting down, microfinance could be the safe haven for invesment dollars.  Some examples of this press:

CBS News:  Emerging Market Investment:  Safe Bet?  

Silicon Valley.com:  Microlending an option amid economic turmoil

Larry’s World:  Microlending sites look a lot better in current economy

Roger Hamilton’s World Wide Wealth:  Microfinance grows as finance market crashes

Gaddeswarup’s Blog:  Effects of the financial crisis on microfinance

CGD:  Microfinance likely to weather the storm 

Times of India:  What microfinance shops can teach Wall Street

Now, if there was only a place for the everyday retail investor to invest in microfinance.  Hey, what’s that green “Find Investments” tab at the top of the page?

The worldwide median for microfinance borrower interest rates was 30.9% in 2005.  Holy cow!  That’s a lot more than you and I would pay if we went down to our local bank and took out a loan (unless “your local bank” is code for your maxed-out credit card).  So what is going on here?  

Microfinance has sometimes been critiqued for charging high interest rates to really poor people.  One counter-argument is, “well, look at the only other options poor folks have – informal money lenders who can charge up to 100% per month.  At least it’s better than that!” 

I say, “not good enough!”  People should have access to the most competitive rate possible, regardless of their wealth.   So the question then is, “are microfinance institutions charging their customers the best rates possible?”

(more…)

Real estate is down 40% in some areas.  The S&P is down 20% from its high.  Crude oil futures surged more than $25/barrel today.  The Federal government proposed a $700B bailout package for the financial industry, the largest in history.  Lehman Brothers filed for bankruptcy.   Bank of America bought Merrill Lynch.  About $224B has been pulled out of money market funds.  Treasuries are down as investors flee out of US assets.  Inflation is up.  Experts are saying there may be a commodities bubble.

So where can you put your money in these crazy times?  Is there any safe haven from the chaos in the current markets besides cash?  Well, we don’t often toot our own horn here at MicroPlace, but none of the security issuers listed on MicroPlace have ever defaulted on a single investment.  That’s because microfinance borrowers historically have had a 97% repayment rate and their repayment rates have been shown to be historically disconnected from larger global macroeconomic trends (see here and here).  

(more…)