Funding Microfinance

Micro-finance has been around for a while as a concept, but it only recently (i.e. in the past decade) became incredibly popular due to the work of Muhammad Yunus, the founder of the Grameen Bank. The Grameen bank has lent out billions of dollars to the poor in the form of "micro-loans," i.e. small loans that are generally less than a couple of thousand dollars in value. Muhammad Yunus won the Nobel peace prize in 2005 for his work.

Since the Grameen Bank came into existence, many other organizations have been founded in other parts of the world. These new micro-finance institutes, or MFIs, have emerged to perform similar functions as the Grameen bank performs in South Asia. These organizations generally specialize in a specific country or region. They operate by taking donated capital and lending it to individuals or groups in their country or countries of operation that are looking to start small businesses but have an unmet capital need.

To facilitate the average individual's desire to help alleviate poverty, websites have emerged that attempt to connect people with excess capital in the developed world with people with an unmet capital needs in the developing world. Two prime examples are Kiva and Ebay's MicroPlace. Both companies give statistics for the performance of the microfinance institutes that solicit money on their sites regarding delinquency and default rates. Microplace additionally offers to pay interest on the loan - though the rates are generally around 3%, which is below what a far more secure bond would pay out.

Currently there is a huge gap between the demand/need for micro-finance capital and the current supply. Many have suggested that the answer lies in securitization and the taping of the large pools of investor capital available from the international financial community. This would involve increasing the amount of reporting and oversite of the MFIs so that their loans can be appropriately rated. Mix Market was partially created for that very reason, though there are plenty of financial institutions that perform the work also.

But, this article entitled "
Microfinance’s Success Sets Off a Debate in Mexico" from the NYTimes indicates that the debate still continues and there are plenty that wouldn't like to see Microfinance turned into a for profit institution.