An Introduction to Microloans That Boost Entrepreneurialism In Developing Countries
Think back to when you first started your business… What was your greatest challenge?
Perhaps it was developing a cost-effective marketing strategy, finding (and keeping) your first customer, or figuring out your fee structure. The path for start-ups is not always smooth, but the internet has given countless good business ideas serious legs, by removing a lot of the entry costs, which can hold people back. After all, there’s a stack of useful advice online. Combine this with social media and the ease by which you can create an online presence, if you have a good idea you can at least test it with very minimal cost.
But this is not always the case for entrepreneurs in the developing countries of Africa, Asia, South America, and Australasia. Here, start-up costs are a significant factor, which stops entrepreneurialism before it’s had a chance. Despite huge public demand, a wealth of skills and talent and a passion for hard work, many small businesses in developing countries cannot afford the most simple of outlays: start-up costs.
Imagine having no money whatsoever, to play with? Here in the UK, we’re lucky enough to have banks, funds, and crowdfunding organisations, where people with great ideas can source the money they need to kick-start their venture. But this isn’t so in developing countries.
And then there are the added problems of political unrest and natural disasters to contend with. As we all know, the poorest countries of the world have governments who can’t (or won’t) support their citizens in times of greatest need. There’s nothing to fall back on for those in poverty. And sadly, those on the breadline make up a large majority of these countries’ populations.
As a fellow entrepreneur and business owner, I’m sure you can feel the frustration of people in the developing world who want to create a better life. And whether you feel drawn to do something to help or you’re wondering what this has to do with you, I think you’ll find the idea of microloans very interesting.
Let me tell you more…
Introducing Kiva microloans
The traditional solution to poverty has been to encourage those with money and resources to give to those without.
Often, this short-term approach solves problems by answering the immediate needs brought on by famine, natural disasters, and wars, and is gratefully accepted. But poverty is a recurring theme in humanity, and so the kind donations of the privileged will only be beneficial for a certain amount of time. This, undoubtedly, causes some of us to ask, ‘So what’s the point of helping people in the first place?’
Entrepreneurial people in the developing world don’t want handouts. Just like entrepreneurs in the UK they have a long-term plan and the drive to see it through. It’s why they want a ‘leg-up’ and the chance to feel empowered to implement their idea and to try to find a long-lasting solution to their financial situation for themselves.
Is it fair that geography prevents them having the opportunities that we have in the UK? You could say these people are just unfortunate because all they lack is the initial start-up funds, which may be the equivalent of a few pounds in UK money. Should they be denied the chance to grow a small empire, or at the very least live a comfortable, prosperous, and happy life simply because of where they were born?
This, in a nutshell, is why Kiva set up its microloan project. Simply put, Kiva believes talent should be given a chance, and is willing to do its bit to see that it does.
How does Kiva’s approach differ to charitable donations?
There’s more to Kiva than charity. That’s because Kiva doesn’t donate money to the underprivileged, instead it gives loans to small businesses that pay it back. In this way, Kiva is more like a bank. And whom do banks assist? Not just individuals, but the economy in general.
So with these loans, business promise is turned into reality, and the world’s economy – as a whole – grows. Let’s say you’re a fruit retailer in the UK. Would you not benefit from a more plentiful supply of crops grown in Africa? Kiva loans enable farmers to get cracking with what they do best, and so this benefits not just their countries’ economies but the overall world supply of fruit. And this, of course, leads to reduced costs for the humble retailer in the UK.
And fruit is just one example. Developing countries supply us with other foods, textiles, clothing, medicines, machinery, and so much more. If you own a business, think how much of your stock could be sourced from these areas – and then how much more if small businesses were more productive.
So you see nurturing entrepreneurialism in the developing world is in everyone’s interests – including yours. Add in the human factor of helping others and you can see why Kiva has won the support of corporations such as the HP Foundation, foundations such as Diller-Von Furstenberg, and public figures including Bill Clinton and Oprah Winfrey. And having started in 2005, it’s still early days.
How does Kiva work?
Loaning to an entrepreneur in a developing country couldn’t be easier. The process is straightforward and pain-free.
If you wish to make a loan (as low as $25, but you can choose any amount upwards), you simply select a borrower from the Kiva website and you’re away. The premise is that you’ll be repaid in full and then you can choose whether you want to keep your money or fund another loan.
At time of writing (August 2015), through Kiva, some 1.3 million lenders have funded over 1.7 million borrowers in 83 countries, with over $748 million lent overall. (View the latest stats at: www.kiva.org/about/stats). That’s quite an impact, don’t you think?
Now for the obvious question: What if I don’t get my money back? You may be surprised to discover over 98% of the loans are paid back in full. This statement alone proves the viability of the Kiva process. Even small loans are making a huge difference – and are giving birth to business ideas, which otherwise would have remained unfulfilled potential.
Obviously, it’s a bit much to expect a 100% success rate in anything, especially when you’re talking about nearly two million borrowers from 83 countries. But over 98% is a fair whack at it! And if anything can assure you that your money’s in good hands, it’s the sheer volume of Kiva loan-givers around the world.
But Kiva likes to go one better, and so offers a ‘free trial donation’ ($25) to show you how the whole process works. It works like this: you don’t have to pay a penny, but you get to choose the borrower you’d like to help out. And then, you can track the borrower’s progress until the money is paid back to Kiva.
So in other words, you get a taste for how quickly loans are usually paid back. Then you’ll know if you want to go ahead with a real loan, how much you’d like to pay out, and how often. Kiva understands your cash-flow concerns, so wants to help you figure out how microloans can factor into your plans.
Invest in an entrepreneur now
If you’d like to take advantage of a free Kiva trial, simply visit http://www.kiva.org/invitedby/barryallaway
In addition, browse www.Kiva.org too so you can see what borrowers and lenders have been doing? I think you’ll see a world of opportunities open up – and how you can be part