Why We Microlend at Team SYSK (Part I)

Josh Clark

Chuck and I remember the first time we came across Mohammad Yunus. It was when we recorded a podcast based on an article on microlending I wrote for HowStuffWorks. Awesome, we thought; this story has a hero. If you haven't read the article (you can here, if you like), Mohammed Yunus is a Bangladeshi economist who won the Nobel Prize in 2006 for his work establishing nontraditional lending programs exclusively to serve nontraditional borrowers: women, the rural poor, the illiterate -- exactly the kind of people mainstream banks overlooked because they were too high-risk or the amount they borrowed was too paltry. Yunus set up community banks and hired local people to act as bankers who rode bicycles to visit their clients and collect weekly payments.

And Yunus showed that the people his Grameen Bank made loans to were trustworthy. Multinational banks had been hesitant to loan to people like the ones Grameen did business with, largely because of fear of nonpayment. It turns out that the rural poor around the world have a slight edge when it comes to repayment statistics. Conventional consumer loans hover around 95 percent, and those issued through microfinance institutions report rates of 97 percent.

What Yunus knew was that when a member of a traditional society in El Salvador or Kyrgyzstan borrows a sum of money, that person is understood to put his or her family name and reputation on the line as credit. The pressure of social and familial expectation to repay the loan, combined with the ease of having your banker arrive at your home to collect your payment each week, would most likely result in a system that could eventually be self-sustainable. More importantly, the loans that were made had a good chance of lifting their recipients out of poverty through enterprise. The loans Grameen Bank and other community microlenders issue aren't intended for the purchase of televisions. Instead, they're intended as small business loans, issued to entrepreneurs in the developing world who have bought into the most hopeful tenet of free market capitalism: that a person, with drive, a goal, a good business plan and some seed money, has a chance to go to work for him or herself and become master of his or her own destiny.

Yunus was a victim of his success. As he showed lenders that their contributions to microlending banks through sites like Kiva.org could be reasonably expected to be put to good use and repaid, he also showed traditional finance institutions that they had a previously overlooked market.

In short order, after awareness of microfinance grew in the last five or so years, new mutual funds that included investments in microlending, pretty much the opposite of the original spirit of the idea, were developed. Large banks bought stakes in smaller regional banks in Asia and Latin America that had new loan centers in huge retail stores. Those very same people who Yunus had sought to bolster could get a loan, not for a purchase of timber for their sawmill, or another oven for their bakery, but for a television for sale in the same huge retail store that houses the loan center. All of this at unadvertised interest rates of often 100 percent or more. And although the source and the purpose of the loan may have changed, the social pressures to repay the loan and the weekly visits by collection offices remain. Things like this made it clear that within just a year or two after Mohammad Yunus won his Nobel Peace Prize, the landscape of microfinance had changed a great deal.

But not entirely. It's about here that Kiva.org comes in, at least as far as we knew. The microlending site made an appearance in the podcast we recorded. From what we could tell, Kiva was the industry standard for microlending based on social responsibility rather than investment. You loan money in $25 increments, and while you get repaid, you don't make any interest, which seems to fit the original spirit of Yunus' microfinance model.

After we recorded the podcast on microlending, Chuck decided we should start our own team. He'd done some poking around and found it was easy, and so in October of 2009, we established team Stuff You Should Know on Kiva.org and began inviting our listeners to join. We found out that Stephen Colbert had his own team and launched a challenge to him. It fell on deaf ears, but we went ahead and beat the pants off the Colbert Report's team anyway. We reached our goal of $100,000 in loans in about three months, and now we've set a goal of hitting $250,000 by the end of August. It's beginning to look like we may just be able to squeak past it.

(Part II of II continues here.)

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