How about a MFI that gets funds online and gives backs profits!!

Things are getting interesting. I am finally moving ahead and reading and studying about microfinance and finding a few new answers to my kind of ideal MFI.

What I discovered today while searching on the net is about an organisation kiva.org. What kiva does is that it has tied up with MFIs around the world. They provide the details on the microenterprenuers who need funding and kiva gets these directly from online users like you and me. Kiva gives the funds to the MFIs and the MFIs gives it to the microenterpreneurs. In return kiva gets reports on repayment of loans and passes it on to the lenders.

Kiva is an NPO so it seems for their cost, they get their operation cost through donations. I wonder how that is possible: running a well technical website, partnering with so many MFIs?

Apart from these if an MFI wants to register with kiva it has to be eligible:

1. Have 1000 active borrowers
2. History of lending 2-3 years
3. Registered as a legal entity in the country of operation
4. 1 year of financial audits
5. Preferred: have a profile on Mix Market (www.mixmarket.org)

What I liked about Kiva:

I like this whole concept of it being a microfinance ebay kind of website where you can choose enterpreneurs from around the world. I also liked that they take in MFIs with at least 2-3 years of experience and one that is legally registered.

But as a lender do not think that you are going to earn profits from lending. No, its a kind of charity that you give and the amount comes back to you after a few months and then you can decide either to give it again or keep it.

The profits goes to the MFI or rather I should say the interest goes to the MFI. And kiva, as i read takes no part of it. It is simple doing the charity work of providing normal people a platform to donate(lend). Somehow i quite don't believe in it. There must be some form of fees they charge to the MFIs who are on their site. There are no free lunches remember?

But yeah, the concept of a site getting people to contribute to specific enterprenuers really strikes well.

Thinking of this, how about an MFI that directly opens a kiva kind of site displaying all the potential enterpreneurs and get the donations directly from the lender. In turn the lender not only gets his money back but also profit on it!! and in case of loss the lender just gets his principal amount and the cost of operation is bore by the MFI!! Sounds excellent doesn't it?

Well see how well writing brings out the creativity, albeit helped ;) so yes i would put that as a proposition on getting the funds. It may be slow for any starter MFI but with time and with honesty and transparency and by giving profits to its lenders, it can succeed!! The lenders will be constantly given reports on the progress of their enterprenuer and it will definitely attract a lot of people even those who donate on kiva as unlike kiva who gives you the information and the way to give a loan, here you get profits on the amount you loan.

Remember I keep mentioning profits because interest limits the earnings of an interest charging institution, but profits, do not. The contra side is that there is tremendous risk involved because being a small busimess and assuming that the person we are lending to is no savvy Ratan Tata or Ambani, there is a likelihood that he might not be able to make profits.

That's where an MFI comes in and sees to it that only those client files that have a potential of making a profit make it to the website to minimize the chances of no profit or loss.

With that thought I shall continue my reading...