EBay: The Place for Microfinance

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Making a Difference

The focus on investing rather than giving is a change for Turner. As a student at the Stanford Graduate School of Business, Turner started a Web site, 4charity, which helps people search a database of thousands of nonprofit groups for charitable causes. The goal was to encourage people to donate to help others. But Turner's focus changed after working in Bangladesh with Grameen Bank, a microcredit institution that pioneered the idea of microfinancing (BusinessWeek.com, 11/27/06) in the 1970s and in 2006 won the Nobel Peace Prize. There, she says, she met a four-foot-tall woman with arresting eyes who changed her life after receiving a $50 loan. The woman used the money to buy a hand loom and weave fabrics that were then sold in a major market. "In the first year, she made enough profit to repay her loan, with interest, build a house, and pay for her kids to go to school," says Turner. "She brought me through her village as proud as can be."

Some critics say microlending is hardly the poverty panacea some proponents would make it out to be. The major capital improvements needed to foster economic development and bolster the poor's living standards, such as building roads and sewage treatment plants, are too large to be financed by a $1,000 loan. And, with so little money to spare, some poor families may choose to direct a loan to food or medicine in lean months, rather than invest it in a business, making the loan little different from a charity donation.

Potential shortcomings are hardly throttling the growing popularity of the microfinance movement in the U.S. In 2005 Kiva and another site, Prosper.com, launched in San Francisco (BusinessWeek SmallBiz, Winter 2006). Prosper has already raised more than $7.5 million in venture capital, and has distributed tens of millions in loans at an average of about $5,000 per loan. Kiva has distributed more than $13 million in loans, at an average size of about $500, to entrepreneurs in places such as Cambodia (BusinessWeek.com, 8/15/06), Samoa, and the Gaza Strip.

Demand to invest at Kiva has been so strong, in fact, that after a September appearance on The Oprah Winfrey Show, the site temporarily ran out of people to help. On average, it takes one day for businesses to get funded, and new entreprenuers are listed every day. "We started off doing microfinance to empower the poor, but when you give people the ability to help another person in a person-to-person way, they feel empowered," says Fiona Ramsey, public relations director at Kiva. "People have really embraced us as a way to make a difference." And with the introduction of MicroPlace, would-be investors will have another place to do the same.

Holahan is a writer for BusinessWeek.com in New York .