Microlending is the extension of very small loans (microloans) to poor borrowers who usually lack collateral, steady employment and a verifiable credit history. They spur entrepreneurship, help alleviate poverty, empower women and as a result, the whole community is uplifted, not just the recipient of the microloan.
Microloans have become a popular and effective way to extend credit to the poor. As at 2009, an estimated 74 million men and women held microloans that totalled US$38 billion. Repayment rates are also put at between 95% - 98%. Microlending is thus an important division of microfinance, considered to have begun with the Grameen Bank in Bangladesh in 1983. It has since grown, and many banks, albeit reluctantly, have begun extending microcredit to the poor.
Peer to peer lending over the web came about as a new and innovative way to enable anyone in the world to provide a microloan to any other person in need, regardless of the country they are in. These loans focus on expansion of small businesses, provision of basic needs like clean water and sanitation facilities, provision of clean and sustainable energy sources, such as solar energy, and for vocational training and higher education. Several peer to peer lending organizations exist.
Kiva is the largest peer to peer lending organization worldwide. Based in the USA, it allows microfinance institutions around the world, called "field partners", to post profiles of local entrepreneurs on its website. Lenders browse and choose an entrepreneur they wish to fund. The lenders transfer their funds, starting from US$25, to Kiva. They aggregate loans from individual lenders and transfer the required amount to the appropriate field partner, who then disburses the loan to the entrepreneur chosen by the lender. Kiva is present in five continents, but it does not operate in India.
Milaap, which has sometimes been billed as Kiva for India, is the first and only peer to peer lending organization that is permitted to accept microloans both from within and outside India. The loans can be as little as Rs 1,000 ($20) and they go towards vocational training, small enterprise, clean water, sanitation and solar energy. Once you make your loan on Milaap, your loan is disbursed within 30 days through field partners. You get a report within 7 days of disbursement on your borrower of choice. At the end of each month, you get a report on the repayment status of your loan, and at the end of the loan term, you get all your money back and can choose whether to re-lend it or withdraw it.
Rang De, India’s first platform for microcredit, aims to make poverty history in India by reaching out to underserved communities through microcredit. It is a nonprofit peer to peer lending organization, and it sustains itself through a nominal cut of 1% on all the loans repaid by the borrowers. The lenders transfer their funds, starting from Rs 100 ($2). The total sum lent to the borrower is transferred to the field partner, who then disburses it to the borrower. As the borrower repays, the money is forwarded to the field partner, who then forwards it to Rang De which then returns the money to the lender. Rang De operates only in India, and unlike Milaap, it cannot receive microloans from outside India.
The Microloan Foundation, also known as MicroLoan, is a UK-based microfinance charity making small business loans to women in Malawi and Zambia in Southern Africa. However, they work on donations from people on the internet, which are then given out as microloans. When the borrowers repay the loans, this money is re-lent to other borrowers. The difference is that the donor does not get the money back.
Lend for Peace is an organization that enables peer to peer lending to borrowers in West Bank and the Gaza Strip. The loan can be as little as US $25, and is powered by Kiva. Their loans work the same as Kiva loans, and the purpose is to help create economic and political stability in the region.
Zidisha is the first peer-to-peer microlending service to offer direct interaction between lenders and borrowers across the international divide. They have eliminated middlemen to reduce the costs incurred in disbursing these loans
United Prosperity presents the lender with the opportunity to directly help poor entrepreneurs and transform the lives of their families and communities by guaranteeing their already existent loans. The lender selects the entrepreneur to support and each $1 he/she contributes acts as a loan guarantee with a bank. Based on the guarantee, the bank makes a loan of nearly $2 to the entrepreneur though a partner Microfinance Institution. Once a guarantee is made, the entrepreneur’s progress can be tracked online. On loan repayment, the lender can either withdraw or re-lend his/her money.
