Microfinance Can Change the World

We are claiming April as the month of Microfinance.

All are welcome to join our community: microfinance professionals, researchers, and enthusiasts; chief executive officers and loan officers; small, medium and large-scale microfinance institutions; microfinance institutions that operate in Bangladesh, Bolivia, Pakistan, South Africa, the United States…anywhere. Voices from the mainstream and voices of dissent are welcome. Diversity in our community will be accompanied by a diversity of experiences, beliefs, and narratives regarding microfinance.

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What is Microfinance

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About Month of Microfinance

We have a lot of questions. Some are expansive: When does the pursuit of scale come at the expense of clients? Does microfinance help move clients out of poverty? Others are specific: What is a fair interest rate to charge? Which fees are consistent with client-centered microfinance? Answers are good. But, conversation – nuanced conversation – that allows for ambiguities and explores the tensions at the heart of client-centered microfinance is even better. 

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Does Microfinance Help People Break Free of Poverty?

Microfinance is a financial service that provides small loans, savings, and insurance to low-income individuals and small businesses who lack access to traditional banking services. The goal of microfinance is to help people lift themselves out of poverty by providing them with the financial tools they need to start or grow a business, improve their livelihoods, and build assets.

There is a growing body of research that suggests that microfinance can be an effective tool for reducing poverty. Studies have shown that microfinance can increase income, improve living standards, and provide a pathway out of poverty for many low-income individuals and families.

One of the key ways that microfinance helps people escape poverty is by providing them with access to credit. Small loans can be used to start or expand a business, purchase inventory, or invest in new equipment. This can lead to increased income and improved livelihoods, which can help to lift people out of poverty. Microfinance can also help to create jobs, as small businesses that receive microfinance loans often hire additional workers.

Microfinance can also help people to build assets, which is crucial for breaking the cycle of poverty. Many low-income individuals and families lack assets, such as land or a home, which can make it difficult for them to access credit or other financial services. Microfinance can help to provide access to savings and insurance services, which can help people to build assets and improve their financial security.

In addition to providing access to credit, savings and insurance services, microfinance can also provide other important services such as business training and financial education. These services can help to improve the financial literacy of microfinance clients, and can increase their ability to manage and grow their businesses.

What is Microfinance, and how to get involved?

Introduction

This guide is for you if you’re looking for a new investment opportunity or are just curious about how microfinance works.

In it, we’ll explain how microfinance can benefit everyone involved—from investors and lenders to borrowers.

Whether you want to learn more about the benefits of microloans and savings accounts or get started in the field yourself, we’ve got everything covered here.

What is microfinance?

A financial service for the impoverished is microfinance or those unable to get a traditional loan. It is a way to help people get started with small businesses, pay school fees, and cover other costs.

Microfinance loans are small loans that can be as little as USD 100 in some cases. They are given directly to individuals or groups who want to start their own business but need more money upfront to do so without assistance from others.

This type of activity has been going on since the 18th century when British philanthropists began loaning out money at low-interest rates to help improve education among children living below poverty line conditions in London slums during this period (Encyclopedia Britannica).

Microfinance Products and Services

Microfinance is about more than money. Microfinance is a way to provide small loans, savings, and insurance to people who need it.

It’s not charity—it’s a business. Microfinance organizations (MFIs) like Kiva partner with local entrepreneurs on the ground to make sure that their services are being used in the best possible way for their communities.

Microfinance does have its critics—some say that giving money away to poor people isn’t practical unless you know how much they need it or can follow up with them afterward to see how they’ve used the funds you provided.

But there are many success stories of people who were able to start businesses or buy the property after receiving microloans from MFIs, which will hopefully convince other skeptics of its value.

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Microloans

So, what is a microloan? A microloan is a small sum of money—typically under $5,000—given to an entrepreneur or low-income individual by a third party.

Microloans are typically used to fund start-up businesses or housing projects in developing countries.

While many international organizations offer these loans, it’s also possible for you to apply for one yourself directly through organizations like Kiva (kiva.org).

Micro savings

Micro savings is similar to microfinance but with a few key differences. Where microfinance loans are small loans (a couple of hundred dollars at most), micro-savings deposits are small deposits that can be made anytime.

Micro savings isn’t restricted to one type of use; they can be used for anything, whether you’re saving up for school fees or starting your own business.

Micro savings is more flexible than traditional savings accounts because the money isn’t locked away—you can withdraw it whenever you need it.

Micro-Insurance

Micro-insurance is risk sharing through a voluntary pooling of small individual contributions.

It can help people in developing countries reduce the devastating impact of natural disasters like floods and cyclones.

It’s important to note that micro-insurance is not the same as traditional insurance, which protects against damage to property or products. Micro-insurance aims to preserve your ability to earn an income (e.g., your job).

Micro-insurance helps vulnerable people recover more quickly after an unexpected loss of income due to sickness or disability.

-This helps them maintain their standard of living so they can continue making payments on loans or paying school fees for their children while they recuperate from illness themselves

What does microfinance mean for you?

If you are interested in microfinance, your first step should be to read up on the different models and types of microfinance institutions.

Then, find out how you can get involved with them. You should volunteer for a local organization that provides services for people who need small loans or other financial help.

Or you could work at a larger organization by answering phones or helping people fill out loan applications.

Whatever your interests may be, there are plenty of ways for you to help improve lives through microfinance.

As an investor

As an investor, microfinance is a great way to help people in developing countries. Microfinance funds are an excellent way to diversify your portfolio and invest your money for the long term. You can even invest small amounts of cash in microfinance funds (starting at $25).

Many people also enjoy investing in individual loans via LendingClub or Prosper, allowing investors to choose which borrowers get their money and what interest rates they will pay.

As a finance professional

If you’re a finance professional, microfinance is a great way to diversify your portfolio. By investing in the future of your community, you can support businesses that will help create jobs and build stronger communities.

Microfinance is also a great way to get involved in social impact investing (SII). SII investments are “investments made into companies or funds with the specific objective of generating both financial return and social impact through their activities.”

As an SII investor, you can support businesses whose profit-making strategies also positively impact society.

For example, one study found that microfinance loans were associated with lower infant mortality rates among rural households in Bangladesh!

As an individual

  • Find a microfinance institution that matches your budget and goals. One of the biggest hurdles to getting involved as an individual is finding a microfinance institution that fits your needs and has programs you can afford.

A simple Google search will pull up lots of institutions in your area, but it’s essential to take the time to look into each one thoroughly before committing to anything.

  • Make sure you are aware of what you are committing to. When assessing an organization’s website or brochures, make sure they clearly explain their business model and how they operate

—this can help you better understand whether their services are right for you (and, if so, how much money they will cost).

Conclusion

Microfinance is a great way to get involved in the business world. You can invest in loans, savings accounts, or insurance policies and help people with limited access to financial services.

It’s also an opportunity for finance professionals or students to learn more about macroeconomic trends and how they affect others around them.

The For-Profit Controversy

Although there are countless heartwarming success stories ranging from micro-entrepreneurs starting their own water supply business in Tanzania, to a $1,500 loan that allowed a family to open a barbecue restaurant in China, to immigrants in the U.S. being able to build their own businesses, microfinance has sometimes fallen under criticism.

While microfinance interest rates are generally lower than conventional banks’, critics have charged that these operations make money off the poor. Especially since the trend in for-profit microfinance institutions, such as BancoSol in Bolivia and the above-mentioned SKS (which actually began as a nonprofit organization (NPO) but became for-profit in 2003.)

One of the largest and most controversial, is Mexico’s Compartamos Banco. The bank was started in 1990 as a nonprofit. However, 10 years later, management decided to transform the enterprise into a traditional, for-profit company. In 2007, it went public on the Mexican Stock Exchange, and its initial public offering (IPO) raised more than $400 million.16

Like most other microfinance companies, Compartamos Banco makes relatively small loans, serves a largely female clientele, and pools borrowers into groups. The main difference lies in how it uses the funds it nets in interest and repayments. Like any public company, it distributes them to shareholders. In contrast, nonprofit institutions take a more philanthropic stance with regard to profits, using them to expand the number of people they help, or to create more programs. 

Concerns about For-Profit Microfinancing

In addition to Compartamos Banco, many major financial institutions and other large corporations have launched for-profit microfinance departments, including Citigroup, Barclays, and General Electric, for example.1718 Other companies have created mutual funds that invest primarily in microfinance firms.

Compartamos Banco and its for-profit peers have been criticized by many, including the grandfather of modern microfinance himself, Muhammad Yunus. The immediate, pragmatic fear is that, out of a desire to make money, large microfinance bankers will charge higher interest rates that may create a debt trap for low-income borrowers.

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But Yunus and others also have a more fundamental concern: that the incentive for microcredit should be poverty alleviation, not profit. By their very nature—and their obligation to stockholders—these publicly-traded firms work against the original mission of microfinance, helping the poor above all else.

In response, Compartamos and other for-profit microfinanciers counter that commercialization allows them to operate more efficiently, and to attract more capital by appealing to profit-seeking investors. By becoming a profitable business, their argument goes, a microfinance bank is able to extend its reach, providing more money and more loans to low-income applicants. For now, though, charitable and commercialized microfinanciers do co-exist.

Nonprofit vs. For-Profit Microfinance

In addition to the divide between the nonprofit and for-profit microfinance enterprises, other criticisms exist. Some say that individual microloans of $100 are not enough money to provide independence—rather, they keep recipients working in subsistence-level trades, or just cover basic needs, like food and shelter.

A better approach, these critics maintain, is to create jobs by constructing new factories and producing new goods. They cite the examples of China and India, where the development of large industries has led to stable employment and higher wages, which in turn has helped millions to emerge from the lowest levels of poverty.

Other critics have said that the presence of interest payments, however low, is still a burden. Despite the healthy repayment rates, there still are borrowers who cannot, or do not, repay loans, because of the failure of their ventures, personal catastrophe, or other reasons. So, this added debt can make recipients of microcredit even poorer than when they started.

What Are the General Terms of a Microfinance Loan?

Like conventional lenders, microfinanciers must charge interest on loans, and they institute specific repayment plans with payments due at regular intervals. Some lenders require loan recipients to set aside a part of their income in a savings account, which can be used as insurance if the customer defaults. If the borrower repays the loan successfully, then they have just accrued extra savings. Because many applicants cannot offer collateral, microlenders often pool borrowers together as a buffer. After receiving loans, recipients repay their debts together. 

What Are the Benefits of Microfinance?

The World Bank estimates that more than 500 million people have directly or indirectly benefited from microfinance-related operations. The Consultative Group to Assist the Poor (CGAP) estimates that, as of 2021, more than 120 million people have directly benefited from microfinance-related operations. Additionally, the IFC has helped establish or improve credit reporting bureaus in 30 developing nations. It has also advocated for adding relevant laws in developing countries that govern financial activities. The benefits of microfinance extend beyond the direct effects of giving people a source for capital. Entrepreneurs who create successful businesses, in turn, create jobs, trade, and overall economic improvement within a community.

What Are Some Criticisms of Microfinance?

While microfinance interest rates are generally lower than conventional banks’, critics have charged that these operations are making money off of the poor. Also, many major financial institutions and other large corporations have launched for-profit microfinance departments raising concerns that, out of a desire to make money, these larger bankers will charge higher interest rates that may create a debt trap for low-income borrowers. Additionally, some have argued that individual microloans are not enough money to provide a realistic path to independence. Finally, critics have said that the presence of interest payments, however low, is still a burden. 

MAKING MICROINSURANCE WORK IN BANGLADESH: THREE TAKEAWAYS

The market for microinsurance in Bangladesh has been growing rapidly over the last 10 years, with over 25 million subscribers. Yet it is still met with skepticism among many poor microfinance clients. As of this January, BRAC, in partnership with Guardian Life Insurance Company, joined the market making its Credit Shield Insurance product available nationwide to a further 5 million of its clients across the country.

Its first microinsurance product, BRAC initially started piloting Credit Shield Insurance in November 2014. After years of testing, we finally have a solution that is simple, accessible, affordable and, unlike most other microinsurance products on the market, voluntary for our clients and their families, while being sustainable for the institution.

Clients benefit in three ways. First, Credit Shield Insurance, which is available to anyone that has a loan with BRAC, covers the outstanding loan balance in full in the event of death of a client or her/his insured family member. Second, the nominee (the client or the surviving family member) receives an instant cash benefit to cover hospital and funeral expenses. Third, clients’ savings with BRAC are reimbursed with full benefits to the family. And all these benefits come at a nominal, one time (per loan) premium.

While Credit Shield Insurance is now a success for BRAC, getting here hasn’t been easy. Below we reflect on three key takeaways from our experience getting microinsurance right in Bangladesh.

1) Keep learning as you scale

While piloting is vital, the learning doesn’t end there. Often the most important lessons are experienced when taking a product out of pilot phase, to scale.

As we prepared to scale, we discovered the need to alter a few product features. This revision was necessary for two critical reasons. First, in a few cases there was a deviation between product features and the actual needs of the client’s household at the time of death. Second, although the business model was found cost-effective in the short run, it was not appropriate for large-scale expansion in the long run.

We learned that our clients really need to free up cash immediately after the death of a family member to cover hospital and funeral expenses. Often families that use cash available to them (for example, from micro-loans) will later look to repay any outstanding loans either by taking high interest loans from informal lenders or by selling assets. We therefore doubled the amount of funeral benefit to BDT 10,000 (USD 125) for our lower-income group loan clients, and quadrupled the benefit to BDT 20,000 (USD 250) for our individual, small enterprise loan clients.

Though we increased the immediate cash benefit, we wanted to keep the previous premium rate as low as possible. We had determined that clients could afford to pay 0.7 percent as a one-time premium for dual coverage (covering the client and another household earner), which is approximately BDT 210 (USD 2.60) for the average loan size of BDT 30,000 (USD 375).

To manage the offering at this price we decided to drop the feature of refunding paid loan installments to balance. This feature was also less critical for our clients who most valued access to immediate cash, a loan waiver, and fast settlement of claims.

Features of Credit Shield Microinsurance Pilot & Scaled Credit Shield Microinsurance.
For example, during our pilot we discovered 28 percent of deaths occurred within 30 days of enrollment. In most cases, these insured clients or spouses had pre-existing life threatening diseases like kidney failure, cancer or fatal heart diseases which they did not disclose. Offering to cover the entire loan amount (by waiving the remaining outstanding loan balance and refunding all paid installments) may have encouraged greater moral hazard among clients whereby they would enroll because of and without reporting a pre-existing illness – adding costs that were too high. Considering these ground realities, the revised features are now more practical, lower-cost and sustainable for expansion.Even with enrollment being voluntary, we experienced an average of 60 percent uptake during the piloting phase. However, uptake needed to be 80 percent in order to be sustainable. Additionally, as there is no assessment of health during enrollment, clients with ill health may get enrolled, potentially causing negative impacts through adverse selection.

2) Invest in building clients’ understanding

Given the novelty of microinsurance within the Bangladesh microfinance market many clients still failed to see the value of the product. To address this, we invested considerable time into on-boarding our clients through three phases.

At the field level, our team explained Credit Shield Insurance through group meetings and one-to-one communication for SME clients. Frontline workers used storytelling to help clients visualize the threats of not having microinsurance, using real life examples from members of the group or local community.

At the branch level, our Customer Service Assistant (CSA) and branch managers conducted separate sessions on the benefits of Credit Shield Insurance, terms and conditions, and common misconceptions surrounding microinsurance, often related to concerns of fraud. At both the field and branch levels, use of pictorial materials such as banners, pamphlets and posters was also instrumental in raising awareness of the product.

Finally, we also communicated with clients via phone. BRAC’s call center has a team dedicated to providing additional information to clients that are not enrolled.

3) Prioritize convenience and usability

Since the pilot, we have reduced the claim processing time from 10 to just three days, transforming a manual claim management system to an automated system. Now the claim documents are directly sent from the local branch to the insurance provider through an app, saving at least seven days compared to sending physical documents through often unreliable local courier systems. Additionally, the practice of funeral benefit disbursement on the date of death is helping clients meet their immediate emergencies. By making the product work easily and efficiently for clients we are shifting the preconceived negative mindset towards insurance and gradually building a culture of trust and transparency.

What’s next?

Moving forward BRAC hopes to offer some add-ons and provisions to address critical issues, such as permanent disability and accident coverage, alongside our current Credit Shield policy.

Over time we hope to create fertile ground within the market for additional, sophisticated, long-term microinsurance solutions like health, crop, and property insurance. But a precondition for a thriving microinsurance market is fostering an insurance culture first – just like how MFIs once established a strong credit and savings culture. To work towards this, we are planning a national awareness campaign in partnership with government institutions.

Microinsurance, including Credit Shield Insurance, will not take off over night. But if there is just one thing we have learned it is that the effort is worth it. As an increasing number of clients choose to opt in we are steadily contributing to the increased protection and resilience of millions of households in Bangladesh.

By Tanvir Rahman Dhaly (Head of Business Development, Microfinance, at BRAC) and Panuel Rozario Prince (Deputy Manager, Microfinance, at BRAC)

Q & A WITH THE FOUNDER OF ZIDISHA – PART 2

Julia Kurnia is the founder of Zidisha, the first online community to enable direct person-to-person lending to entrepreneurs in developing countries without local intermediary banks. We had our first Q&A with her last year. You can find her on facebook and twitter.

  • What makes a person-to-person lending platform so unique in the microfinance world?

Person-to-person lending platforms like Zopa, Prosper and Lending Club have reduced the cost of loans in wealthy countries for many years. Zidisha was the first to apply the direct person-to-person lending model to microfinance loans in developing countries.  

Unlike traditional microfinance services, we don’t have branch offices or loan officers.  Instead, we provide an online crowdfunding platform that connects internet-capable microfinance borrowers directly with individual lenders worldwide.

Traditional microloans, even those funded by charitable lenders through microlending websites that work with local partner organizations, pass to borrowers at interest rates averaging over 30%. This is due to the high cost of personnel and branch infrastructure, relative to the small amounts of the loans.

The direct person-to-person lending model makes it possible to reduce the cost of microloans substantially. Zidisha borrowers pay only a service fee of 5 percent for the loans (which are interest-free). The lower cost means borrowers keep more of the profits from their loan investments.  

  • How does Zidisha balance using 5 percent service fees to be sustainable and being client-centered? Have you ever been tempted to raise the fee?

Since we don’t have physical offices or staff in borrower countries, our costs are far lower than those of traditional microfinance services. Our main costs are money transfer fees, SMS messaging, and website development, and these are fully covered by the 5 percent service fee income.  

We’re a nonprofit organization, and our mission is to help disadvantaged entrepreneurs in developing countries access affordable investment capital. An important value for us is to keep a very low overhead cost ratio, and pass on the savings to our members. This constraint has often been an advantage, as it has forced us to develop innovative ways to keep costs low, such as automation and decentralizing to the community tasks traditionally done by loan officers.

Though we’ve never raised the 5 percent service fee, we originally allowed borrowers to offer interest to lenders. We discontinued interest for lenders in 2015. One of the reasons was that it undermined our value proposition of providing very low-cost loans – the main reason many lenders as well as borrowers choose to participate.

  • What role does trust play in Zidisha’s borrower to lender relationship?

Trust is the most difficult challenge for a web-based marketplace. Since Zidisha borrowers aren’t vetted by loan officers, and we don’t require collateral, we’ve had to evolve other ways to manage credit risk and ensure responsible participation.

We make use of cutting-edge technologies, like using machine learning to develop fraud detection and credit risk predictive algorithms. However, our most important credit risk control measures are simple and low-tech.  

Every first-time borrower must repay a small test loan before they can post a larger loan application for funding by Zidisha lenders. Thereafter, credit limits increase based on each member’s track record of successful repayment. Borrowers who wish to raise larger amounts more quickly may qualify to do so by making a payment into a reserve fund, which we use to refund lenders for any defaults. This makes it possible for lenders to preserve the value of lending funds over time, even without earning interest.

Most new borrowers come to us via word of mouth, and new members who have invites from established borrowers with good repayment records enjoy higher starting credit limits. Established borrowers may continue issuing invites, in limited quantities at a time, as long as their invitees continue to demonstrate good overall repayment performance.  Over time, this leads to a system where networks of responsible members grow and become the dominant behavior.

  • What kind of relationships have you seen come out of your person-to-person model?

At Zidisha borrowers create their own profiles, sharing their personal story as well as a loan proposal. Lenders and borrowers can post messages and photos. Conversations often focus on the loan project, with the borrower answering lender questions and sharing photos and news of progress made thanks to the loan investment.  

However, lenders and borrowers often go further, sharing family photos, describing local holidays and even exchanging recipes. One of the really special things about our community is the friendships that are forged across vast geographic and socioeconomic distances. It’s a way to experience the world through the eyes of someone in very different circumstances – a life-changing experience for both lenders and borrowers.

  • Why is it important to give the borrower a high degree of control and flexibility? How does trust play into that?

Another of our values is to respect our members’ judgment, and intervene only as needed to ensure responsible participation and protect the integrity of our lending community. We believe people perform best when allowed to make their own decisions and take responsibility for them. For this reason, we don’t have any restrictions on the use of loans, other than that it be legal and ethical. 

We also allow borrowers to design their own repayment schedules, with the only requirement being that a repayment installment must be paid at least once weekly to maintain a good on-time repayment record. Borrowers choose the day of the week on which installments fall due, and how much will fall due each week. During the loan period, borrowers may adjust their weekly installment amounts as needed to accommodate changes in cash flow.  

We’ve found that this flexibility does not usually result in excessive loan periods; most borrowers repay as quickly as they can afford, in order to access new loans to further grow their businesses. And it helps ensure that the loans never cause harm by forcing people to choose between procuring basic livelihood and making a scheduled repayment installment.

  • How do you think client-centered microfinance has evolved and where do you think it’s going?

When Zidisha was founded seven years ago, it was a niche product, available only to the small minority of low-income individuals in developing countries who had access to the internet. Now, the spread of smartphones is bringing connectivity to far greater numbers of people. Smartphone app-based lending services are proliferating and providing much-needed competition to traditional banking models. This is a regulatory challenge, but also an opportunity to bring affordable financial services to far more people than has ever before been possible.

  • Where is Zidisha going in the future?

We recently launched lending programs in Haiti, Rwanda and Mexico, following the spread of mobile phone-based payment technologies. In Mexico, we’re using Bitcoin to transfer money for the first time. We’d like to continue to expand to more countries as payment services develop.

As our lending volume continues to grow, we’re able to predict repayment performance more accurately, and develop better fraud prevention algorithms. We’re investing more in data collection and analysis.

We also launched a smartphone app for borrowers, and an increasing percentage of Zidisha loans are raised via the app instead of our website. Learning how to adapt our website-based model to a smartphone interface is an ongoing challenge, and opportunity.

WE’RE NOT A F%$&@*! CHARITY 🙂

Let’s make sure one thing is super clear: Seeds is not a charity.

We’re not a charity, we’re not a nonprofit, we’re not an NGO. While we think many of those organizations are rad, we don’t belong in those categories. In fact, we don’t even think those categories always apply — we’re moving towards a world where these rigid definitions are starting to blend together. Seeds is a great example of that: we combine the best of all worlds, but at our core, we’re business. A high growth potential startup, to be exact.

Wait, what? I thought you were a vehicle for social good.

We are! Here’s a quick primer on how Seeds works:

Think of us as a Venmo or PayPal. When customers go to make an in-app purchase in one of our partner apps, users will pay through Seeds, which channels the money to our partner 4G Capital, a microloans institution in Africa that has provided $13.7 million in loans since its inception to entrepreneurs, 81% of which are women.

Here’s why we’re so powerful: Social good is the most effective way to get people to spend existing micro-amounts of money — $3 here, $10 there. As a result, Seeds inspires more spending, simultaneously helping others while solving a big problem for apps — 97% of all app users don’t buy anything, but Seeds users are up to 60% more likely to. Helping others and making money aren’t mutually exclusive. Under our approach, we create wins for everyone across the board, from the user making a socially conscious purchase to the appmaker earning more revenue to the lendee receiving a much-needed loan.

One of our microloan beneficiaries is Mary Maina, a Kenyan woman who’s been able to grow her bakery business from a one-person labor to a three-person operation. The proceeds go to provide, food, school supplies and health care for her three children. Microloans have made a real impact on Mary’s life, and they’re an easy way to channel a purchase you would have made anyway into capital for someone in need.

So it IS charity!

Not quite. A microloan is what it sounds like — a loan. It’s meant to be paid back, and our lendees do so at a rate of 98.5%. The money goes towards building economic capital for people who, for example, may be looking to expand their farm or kick off a weaving business. We’re increasing the amount of capital that’s available to people who have clear ideas of how to improve their economic circumstances. We’re also able to continue re-lending that capital in perpetuity, helping people over and over again.

Why microloans?

We wanted a solution that helps people sustainably. While it certainly makes sense to teach a man or woman to fish, that person ultimately needs a fishing pole, lure, tackle, bait — maybe even a boat. Microloans empower would-be fishers, farmers and business owners to procure what they already know they need. Many of our loan recipients say they don’t want charity. They don’t need a hand — they need capital to build out something they know is needed in their community. If Mary had never gotten access to our microloans, she never would have been able to grow her bakery to a thriving business. We provide that much-needed cash to people like Mary.

If Seeds is a for-profit, how do you make money?

The Seeds system is a win-win-win-win. There are four players: The appmaker, the user, the loan recipient and Seeds. Here’s how the system works for all of us:

Appmaker: Seeds increases in-app purchases by up to 60%, and our users spend 4x what normal buyers spend. The opportunity to do social good speaks to users in a big way, and it powers spending.

Users: Users get immense satisfaction and knowledge that they’re empowering motivated individuals in the developing world simply through the spending they do on fun — maybe it’s a meditation package on Aura or gems in Habitica — at either rate, they’re buying something they likely would have bought anyway, and contributing to social good in the process.

Loan recipients: Loan recipients get the cash infusion they need (sometimes all they need is $4!) to start a business, expand an enterprise or otherwise build an economic engine to sustain themselves and their families.

Seeds: Seeds takes a transaction fee for successfully inspiring a non-spender to start buying, and we share in the interest generated on the microloans.

Conclusion

Charities can be great, but Seeds isn’t one. If you want to make a difference through your everyday purchases, try an app that has Seeds embedded in it — Habitica, an awesome productivity app, Mini Golf Stars 2, a fun golf game, and Aura, the best meditation app for stress and anxiety, are three of our favorites. We’re excited about the potential to funnel millions of dollars to entrepreneurs both around the world and here at home, and can’t wait for you to be a part of our journey!