Microcredit Investments: Doing OK While Doing Good Detroit MI

Socially-conscious people are finding more avenues for furthering good causes these days. Those interested in microlending have a few new options to think about—including some real investment opportunities. As one might expect with do-good causes, the returns aren’t great, but these vehicles can help diversify a portfolio or put idle money to good use.

Using microfinance as a means of lifting people out of poverty showed up on the global development scene in the 1970s, and since then microlending institutions have been funded primarily through charitable donations. Organizations such as  Trickle Up and Grameen Bank have made billions of dollars available to entrepreneurs all over the world.

In today’s world of social networking, the microlending scene has gone online. Person-to-person lending site Kiva , for example, raised $25 million in its first two years by allowing individuals to earmark their loans to specific borrowers. The small size of most of the loans, and lenders’ ability to fund in increments of $25, is attractive to many individuals who don’t want to tie large sums of their money up in accounts with no return. Kiva ranked number one on NuWire's Top 15 Charities for Investors for 2007 .

13 million microcredit borrowers have $7 billion in outstanding loans in 2008 In the last few years, the view of microfinance as primarily a charitable cause also has begun to change. The Consultative Group to Assist the Poor wrote in a February that “the entry of private investors is the most notable change in the microfinance investment marketplace. New players arrive on the scene every month.” The Global Development Research Center (GDRC) says there are now 13 million microcredit borrowers with US$7 billion in outstanding loans, and the volume is growing at a 30 percent annual rate.

GDRC also says the repayment rate for microloans is 97 percent. At that rate, it’s no wonder that private investors are interested. Here are a few thoughts about opportunities to earn modest returns through microlending.

Securities investments

The most common way for socially-conscious investors to get into microlending is to put money into a security or note that raises capital for a microfinance institution to fund loans. This is the approach taken by MicroPlace , which says it is “currently the only website that provides everyday investors with the ability to make investments in the microfinance industry.” The investment is actually in a note issued by Calvert Foundation, which funnels the principal to lending organizations that make loans to borrowers. As with other debt instruments, interest is paid over the term of the security, but investors don’t get any principal payments until the security matures. Interest rates of up to 3 percent are available, and investments can be for as little as $50.

MicroPlace investors can choose whether their loans will benefit the &ldquo...

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