Calvert Giving Fund
CANOE Money
January 3, 2008
Canadian financial firms offer investors role
in global microfinance lending
By Craig Wong
VANCOUVER - Kamil Ramazanov is looking for a loan.
The Azerbaijani butcher wants to buy two calves and is looking for US$950. He's offering to repay the money monthly over the next 12 months.
His profile on Kiva.org says he's 49, lives in the town of Khachmaz with his wife and three children and owns a butcher shop.
Welcome to the world of international microfinance, where ordinary people in first-world countries can become lenders to ordinary people in developing nations.
Kiva spokeswoman Fiona Ramsey says her organization's mission is to connect people through lending to help alleviate poverty.
"That connection is really important to what we do," Ramsey said.
Kiva, which has been highlighted by former U.S. president Bill Clinton, has loaned nearly $18 million through its partners with a default rate of 0.21 per cent.
Kiva works when investors pick a small entrepreneur in the developing world they want to invest in and make their investment using a credit card. When the money is repaid, Kiva's investors have the choice to withdraw the money or reinvest the money with another borrower.
"So you can multiply the social value created by the funds every time they are reloaned," Ramsey said.
Microfinance as a development tool gained international prominence in 2006 when Bangladeshi economist Muhammad Yunus and his Grameen Bank won the Nobel Peace Prize for pioneering the use of microcredit to spur creation of small businesses in poor countries
Grameen has loaned more than US$6 billion since the project was launched in 1976.
But while Kiva doesn't provide a financial return to its investors, others do.
The Vancity credit union and Citizens Bank of Canada offer investors a chance to support international microfinance programs and earn a return.
Unlike Kiva, through their Shared World program, money invested in the term deposits at the Canadian financial institutions, is protected under the Canada Deposit Insurance Corp., is RRSP eligible and most importantly, earns a return.
At an annual interest rate of 3.7 per cent for a one-year term deposit, the return trails a conventional non-redeemable term deposit which would pay 4.35 per cent, but Elisabeth Geller, manager of community leadership at Vancity, said investors have not been put off.
"What we find is members are very loyal to us because they've been looking around for something they can make a contribution internationally to," Geller said.
"They turn on the news, especially this time of year, and see what's happening around the world and think they want to be part of that solution."
Shari Berenbach, executive director of the Calvert Foundation, which issues the notes that Vancity and Citizens Bank uses and helps channel the money to individual microfinance institutions around the world says her group manages risk because it has years of experience.
"What we're able to do is provide them with a lot of assurances about credit risk because the foundation is an experienced lender to microfinance overseas," Berenbach said.
The money is used to fund small businesses in the developing world like small farms and fair trade projects.
The foundation also uses what it calls "credit enhancements" or subordinated investments that act as a cushion between the investor and any potential risk.
"We're all about making it safe and convenient for average people to reach the microfinance market," Berenbach said.
Though still a fraction of its total money held in term deposits, Vancity holds about $7 million in Shared World deposits, while Citizens Bank holds another $2 million after being launched nationally last year.
But Geller said support is building as more and more people make the deposits part of their portfolio in the mainstream.
"It allows people to build up their own portfolio which gives them more money that they have to invest," Geller said.
A quick look at online peer-to-peer international microfinance organization Kiva:
Total value of all loans made through Kiva.org: US$17,986,735
Number of Kiva Lenders: 198,574
Number of loans that have been funded through Kiva.org: 27,635
Number of microfinance institutions Kiva.org partners with: 77
Number of countries Kiva field partners are located in: 39
Current repayment rate: 99.79 per cent
Current default rate: 0.21 per cent
Average size of loan for funding: US$599.63
http://money.canoe.ca/PersonalFinance
