Homeowners in Howard County are familiar with jumbo mortgages, bridge loans and sub-prime loans. The principal is in the hundreds of thousands of dollars and the payments are in the low five figures.
But can a small loan make a difference, like a “micro” loan? Just as important, is a loan a better way of helping people out of poverty than charity?
Most Americans have few dollars to give; our paltry savings rate shows that to be true. But most of us are eager to assist others, to help the poor, to enhance the lives of the marginalized. Yet even volunteer time is a precious commodity. So, what to do?
As a dyed-in-the-wool capitalist and business professor, some people are surprised to hear me speak of such things. “Aren’t you the one who teaches greed, maximizing profit?” people ask. The short answer is no, but the full answer is this: Business is the creative use of capital to find innovative ways to transform lives.
Or, “How do you leave the world a better place than you found it?”
My one-word response today would be “Kiva.” Kiva.org is a microfinance operation that supports entrepreneurs and is itself a social enterprise. Entrepreneurs place an emphasis on the word “creative” when it comes to the use and creation of capital, and social entrepreneurs focus on “social” in leveraging and creating social capital, e.g., health, education, safety and happiness.
A $25 Kiva loan to an entrepreneur in a poor country costs the lender a 15% administrative fee ($3.75) and can help close a loan that could run into the thousands of dollars, helping that entrepreneur to build her business, support her family, get an education or any number of positive outcomes that increase social capital.
The majesty and miracle of Kiva lies in the transformation of the borrower’s business and life, as well as in the fact that this is a loan, not a gift. The repayment rate on Kiva loans is enviable, about 99%. And despite some qualms about interest rates and rollover loans, it is a great feeling to make the loan — and an even greater feeling of good to see the loan repaid.
And that means you can lend to a second, a third, a fourth borrower. Other than for that small, optional administrative fee, the loan fund can last forever.
Face it: Most people have a negative view of capitalism. The fact is that free markets, innovation, technology, globalization and attention to the poor have helped reduce global poverty rates by two-thirds in the last 30 years. You could “give a man a fish” and perhaps “teach a man to fish”; with Kiva, microfinance and social entrepreneurship, you can help a village to create and sustain a fishing business.
And that’s not charity. That’s transformational generosity that can keep on giving. And it also is a business, a business with purpose, for people, not for profit. And it’s personal.
In late 2013, with a corporate contribution for a student project, we set up a revolving Kiva fund that started with Loyola students lending $5,000 to eight borrowers. In 18 months, that money has recirculated and contributed funding to make 200 loans. These repayments are recycled to the next round of borrowers. So go to Kiva.org. Check it out. Start a loan fund. Become a banker to the poor. Make business work for everybody, not just the rich.
That’s business we can live with … while helping others to live, too.
Peter Lorenzi is a professor of management at Loyola University Maryland’s Sellinger School of Business and Management, which has a campus in Columbia. He can be contacted at 410-617-2716 and [email protected].