Investment helps the world's poor help themselves

I get hit with offers to donate to charities all the time. They usually call around dinnertime, using the technique telemarketers mastered before the No-Call List.

It's hard to know what to say to them. The causes all sound good, but you can't tell if they are legitimate.

The whole experience had made me somewhat cynical about these charities.

Last week, I saw something that changed that view.

It's a Web site called Kiva.org. It's a unique nonprofit organization that enables people to loan small amounts to help fund small businesses in countries around the world, a practice known as microlending.

I saw a profile a few months ago on Muhammad Yunus, who won the Nobel Peace Prize last year for his work in microlending. He stumbled across the concept in 1974 when he loaned $27 to 42 families in his native Bangladesh. That money helped these families operate businesses to support themselves, and they paid back the money.

What Yunus found was that, unlike in this country where even a dog can get a low-interest credit card, affordable financing is hard to come by in large parts of the world. Those who can get loans through regular financial institutions face interest rates that often exceed 35 percent. Those who can't borrow from banks often fall prey to loan sharks, and are reduced to virtual slavery by the outrageous rates.

Think about where the American business community would be without easy access to credit.

What Kiva.org does - by using the Internet - is enable people to invest directly in individual small businesses, without the crippling interest rates.

So I logged on and gave it a try. I searched through the multitude of people seeking loans from the far-off corners of the world, reading their stories and what they want to do with the money. There were many intriguing tales, and worthy investment opportunities.

I finally settled on Joina Achieng Kwama, a woman in Nairobi, Kenya, who runs a beauty salon. She wanted $850 to buy equipment and supplies. Other investors had already pitched in $100, so I added my small loan (sorry, but Uncle Sam gets the majority of my disposable income this month).

One of the things that drew me to invest in Joina's salon is that my wife is in the same business, and I know a little about what she is facing. Joina has also been recognized by her local business group, Women's Economic Empowerment Consort, as a strong leader, and is the treasurer of that group because she is good at keeping records.

One of the strengths of Kiva.org is that they partner with local groups like this one, which screen candidates for loans and offer them support for their businesses.

So what do I get out of it? If Joina pays back all of her loan, I'll get my money back, which I can either withdraw or invest in someone else. There is no interest, and all of the money goes to the recipient, with a small commission going to help support the local partner organizations. Kiva.org is supported by donations, and is backed by some Silicon Valley angel investors.

For many years, I've watched our government dole out hundreds of billions of dollars in foreign aid, which doesn't seem to work. Much of that money ends up in the pockets of corrupt government officials, who use it to the detriment of their people.

In many ways, the world would be better off if we just kept all that aid money.

These people don't need a handout, but a hand up, just enough to help them help themselves. Investing in small businesses like this is a great way for these societies to prosper and pull themselves out of poverty. This isn't charity, it's capitalism. Those getting loans have to pay them back, and Kiva.org so far has a repayment rate of 100 percent.

Programs like this work far better than government efforts because it connects people together. I know who my money is going to, and Joina knows where it came from. It's not some government gift, but a loan from someone who wants to see her succeed. Our government could learn an important lesson here, that success can be achieved by empowering people and then staying out of the way.

If only we could expand on these kinds of private efforts, we could get rid of all those expensively useless foreign aid programs, and end up with a far better result, one small business at a time.

• Kirk Caraway is editor of http://nevadapolitics.com, and also writes a blog on national issues at http://kirkcaraway.com.