Microfinance is the lending and borrowing of (relatively) small amounts of money. Generally, the lender is a (relatively) rich Westerner and the borrower a poor citizen of a developing country. And I don’t mean relatively poor; I mean abject poverty, where $25 to buy a goat means the difference between being able to feed your children and death. 95% of the world lives on less than $1.25 per day. 95% of the world lives on less than most Americans spend daily on a cup of coffee. I say relatively rich because most people consider themselves to be middle class and because “rich” is a very relative term (Can I make impulse buys? Absolutely. But when was the last time I gave a grant to fund education? Umm, how ’bout, not even thinking I might reach that in my lifetime.). I feel it’s necessary to define these terms & to use them, because generally speaking, they’re terms people are not comfortable with.

I have often heard that giving money and providing education to the world’s poorest women is the surest way to lift whole communities out of poverty. Some say that this is because they reinvest in their families (and certainly, an educated mother would be sure to continued to educate her daughters), but it may also be because women do the bulk of the unpaid work—making them necessarily more industrious, or because the means of wealth are often controlled by the communities’ men. Very often, minimal (Western) amounts can accomplish this: $10, $20, $50. Sometimes, however, more is needed: $1000 to start a small business, for example. And this is where microfinance comes in.

An entrepreneur goes to a local bank (sometimes with 3 additional borrowers as security for one another) and the local bank gets money from Western givers. This is a fantastic deal for the “microentrepreneur” and not a bad one for the knowledgeable Westerner. For the most part, these are “loans” to the borrower but “gifts” to the “lender”. The local bank gets the money and charges interest on it to cover overhead. The Westerner never sees their money again, but gets warm fuzzies.

I recently attended a conference where the founder of Kiva, a microfinance/social networking site, gave a talk about Kiva’s business model. The local bank charges between 20% and 30% interest (which someone put into perspective as being close to the 18% we pay for unsecured loans/credit cards), essentially pocketing the difference. Now, I’m as charity-minded as the next person, but I’m not currently in a position to give away money $1000 at a time.

I am, however, what most Western financial institutions consider a “micro” investor: I have less than $100 000 to invest (a lot less, but that seems to be the general cut-off). I see a huge market for putting my money (that I want to invest) to work in the hands of poor microborrowers across the world (or even here at home). I’m certainly not expecting 30% interest (although, wouldn’t that be great?) but would expect some kind of (at least anticipated) return. Calvert, the “socially responsible” institution my investments are with is considering diversifying into this field but as near as I can tell has not yet done so.