How to Use Paypal to Become a Micro-Lender

If you haven't heard of micro-lending, it is sponsorship in the grand tradition of "teach a man to fish". Micro-lending offers small loans at reasonable interest rates to the working poor in third world countries, to improve their means of making a living. They are not loans for consumer goods like new TVs or better homes. Nobel Peace Prize winner Muhammad Yunus started this concept with his Grameen Bank he founded more than three decades ago. Today, many organizations both for-profit and non-profit operate micro-lending, or MicroFinance Institutions.

The typical rate is around 35%, which seems excessive to Americans, but it is a reflection of the actual costs of getting money to the rural and sometimes isolated poor, and only a fraction of the rates charged by local money lenders. One company, Kiva, has come up with a wonder idea to shave off some of the administrative costs. Paypal users - which is almost everyone these days - can loan money interest free to individuals listed at the site. So that you know where your money is going, you can read about people, and receive updates on them. Paypal has donated the processing fees. After the loan recipient pays back the loan (which happens the vast majority of the time) you can either loan your money to a different person or request it back.

Recipients of the loans generally are either buying a tool to make their business or productive, or expand their offerings. For most of the third world poor, the only way to borrow money is from the local money lender, who charges usurious rates, often 10% per week. These kinds of interest charges eat up the profits of the small business, so that the small business owner can not get ahead. With a little help, the entrepreneur can get ahead, and start the cycle of growing more and more.