Microcredit loans help those who are in poverty, typically in developing nations, to start a business and help bring their families out of poverty. In a socially conscious world, microloans are gaining in popularity.
Microcredit helps circulate money in poor communities; so one initial investment can help many different people.
Here is an example of how a microloan program works. While overly-simplified, it can help you to understand the basics:
1. A man in Peru runs a service business, but has to rent the equipment he needs to run the business. The rental fees are high and significantly cut into his profit margin. He begins to look for small business microloans.
2. He is able to borrow $100 through microcredit programs. This is enough money to buy the equipment he needs. He no longer has to pay a rental fee, but he has to make payments on the microcredit loan.
3. After two years, he has paid the microloan lender back and all of the money he makes is pure profit. He is able to bring his family out of poverty.
Donate money to microloan programs that help in developing nationsIf your company has a corporate giving program, microcredit programs can be a great way to donate money. A donation that is small for your company can make a big difference in someone else's life.
Find companies that offer microloans to U.S. residentsDeveloping nations aren't the only places with poverty. A significant percentage of American citizens also live below the poverty line. Some microloan banks help these citizens to break free from the system of poverty.
Use microloans as an investment vehicleWhile in most cases it's best to give money to microloan programs as a donation, you can use them as a way to invest your money. Interest rates are typically low, but you can feel confident knowing that you are helping other people while making money.
- As with any investment, there is risk involved when you use microcredit loans as an investment. You may not get a return on your money. Make sure you understand all of the rules and regulations before making a commitment.