Saturday, February 12, 2011
If you are a "self-sufficiency" conservative with a charitable bent, you should consider making networked microloans through Kiva.org. The organization works through affiliate lenders in mostly developing markets to make loans to ultra-small businesses. As those businesses succeed, they pay the loans back. You do not get the interest -- the margin gets sucked up by the relatively high transaction costs in making loans in the hundreds of dollars -- but as your money is repaid you can turn it over in to a new loan and build another business. You can select borrowers by geography, so I have decided to devote my lending to businesses in Iraq. I have lent to a fellow who has bought a generator and sells electricity to his neighbors, another dude with a soft drink and juice business, and a third young man who has opened a general store and wants to buy a refrigerator and build his inventory. They are building Iraq, and through Kiva you can help them.
Feeble, a couple of small points.
1. The borrowers pay interest, but the lenders do not get it. The costs of managing tiny little loans overwhelms the interest income. The difference is made up with small charitable donations. But the principal gets returned or reinvested, at the election of the individual lender.
2. Kiva does make loans in the United States, I believe. But not many people need really tiny loans to start businesses here.
There's too much capital in the United States for micro-loans to do much good. Loaning $250 or $500 for a promising business enterprise in, say, Delhi or Basra goes a hell of a lot further than in virtually anywhere in the US. Scarce or unavailable credit for entrepreneurs strangles development in these places, but they have undeveloped markets that are just waiting to be exploited once someone DOES get some startup capital.
Targeted microloans are one of the great success stories of international development, far outstripping typical foreign aid programs in returns. Schemes as simple as cheap soap and some basic classes in hygiene in Indian slums have made people rich. If someone could find a way to make it profitable to invest in microloans, it would probably do so much cumulative good (by harvesting the forces of capitalism) so as to guarantee that person a place in heaven.
Unfortunately, practical expenses tend to limit its reach to charitable institutions, and even that can be a rough sell. Most do-gooders would rather just write a check for X and pat themselves on the back than loan money to some worthy individual... it stinks of 'imperialistic exploitation.'
Wish I could be more enthused about this. Micro-loans have been available for years in Iraq through the USAID partner Tijara and the U.S. Military. My sense about these programs (and others like them) is they just reinforce a state welfare mentality. Understandable, considering the money that has been spread around to redevelop Iraq. Everyone wants a piece and they work the systme hard. I once spoke with some Iraqi "businessmen" seeking funding and Micro-loans were suggested. The Iraqis countered that they "preferred a loan they did not have to pay back."
And before the war you had an economy dominated by State Owned Enterprises which produced inferior goods and whose workers expect to keep their jobs and receive a paycheck no matter what happens, including the looting and destruction of the factory where they worked. No manufacturing base and disincented workers is not a recipe for future success.
I wish Kiva was the answer to restarting Iraq's economy, but I don't see a long term gain. Even a loan to an honest businessman has a very limited effect. Since the vast majority of goods are imported, most of the dinars grossed by a vendor wind up going to Jordan or other Middle Eastern countries. Money flows out of Iraq, instead of being reinvested.
Turning Iraq into a capitalist country is tough problem with no easy answers. If you do decide to make more loans to Iraqis though, may I suggest loaning money to women? My understanding is they tend to be more responsible borrowers and it could likely help in addressing the power imbalance among men and women in Iraq.