What are micro loans?
Micro loans are small loans, often as little as $50, granted to individuals, usually women, to establish or expand a small, self-sustaining business. For example, a woman may borrow $50 to buy chickens so she can sell eggs. As the chickens multiple, she will have more eggs to sell and later sell the chicks. Each expansion pulls her further away from the devastation of poverty. Micro finance is considered one of the most effective and flexible strategies in the fight against global poverty.
These loans are repaid at a rate of 97 to 98%. The poor are a good credit risk! Money donated for these loans is repaid and loaned out over and over again. A little bit goes a long way.
Why Micro Loans?
The conditions in most developing countries make a micro loan the only pathway to a future. Most of the world's three billion poor people cannot find work. Where they live, few jobs are available and those that are often don't pay a living wage.
To survive, they must create their own jobs by starting tiny businesses or "microenterprises." To support their families' basis needs, these "micro-entreprenuers" make tortillas, sew clothes, mend shoes or sell vegetables in the street -- anything to put food on the table.
Micro-entrepreneurs work hard -- sometimes 18 hours or more, every day of the week. Yet with little or no capital to grow their businesses, they remain trapped in a cycle of poverty. To open their businesses each day, they often borrow from loan sharks who charge as much as ten percent daily, or they pay higher prices to buy goods on credit. The result: their hard-earned profit ends up in the hands of others, leaving them locked in a daily struggle for survival.
What they need to break free is working capital -- a loan as small as $50 at a fair rate of interest. Yet, in traditional banking, these micro-entrepreneurs are far from ideal clients: their loans are too small to justify the time and expense needed to administer them, and they lack the collateral and credit history required by traditional lenders.
A small loan can cut the cost of raw goods or buy a sewing machine. Sales grow, and so do profits. With a growing income, people can work their way out of poverty.
An independent study reports that 10,000 people a month are being lisfted out of poverty through micro loans. Micro finance works because it builds on the one asset found even in the poorest communities around the world: the power and determiniation of the human spirit.
The Gift That Keeps on Giving
Micro loans are repaid and loaned out again and again, truly making them the gift that keeps on giving. A typical loan of $50 results in three loans being made with it in the first year. Each borrower usually repays his or her loan within four months. Moreover, each loan provides start-up capital that will support a famiy that averages five people. So each dollar you donate touches the lives of hundreds of people in subsequent years.
| With a gift of $ 50 | Year 1 | Year 3 | Year 5 |
| Amount loaned per year | $150 | $150 | $150 |
| Cumulative value of loans | $145 | $450 | $750 |
| Cumulative # of clients/loans financed with your gift | 3.0 | 9.0 | 15.0 |
| Lives improved with your gift | 15.0 | 45 | 75 |