Microfinance

Lend money directly to entrepreneurs or small businesses to help them expand

Last Updated: January 2021

Microfinance is where you (the investor) lends money directly to individuals or small businesses, and ordinarily receive a return from the interest on the loan. It is the same concept as peer to peer lending, however microfinance specifically refers to loans given to those who lack traditional banking services, such as entrepreneurs or businesses in the developing world. 

Shared Interest

Ethical investment co-operative lending to fairtrade businesses

Minimum investment: £100

Fee: No platform fee

Typical financial return: 0.25% per year

Focus: Loans to fairtrade social enterprises and cooperatives in developing countries

Shared Interest is an ethical investment co-operative. It pools lenders'  capital to provide loans and credit to primarily fairtrade businesses. This means that you do not have to make the decision on who to lend to. The company aims to alleviate poverty by helping people in remote and disadvantaged communities to trade and earn a living. 

Your money is then pooled with the other investors which spreads the risk of the loans. In practice, the interest earned on your loans is very little- at present the interest rate is 0.25% per year. There is also a risk of losing your capital if a lot of loans aren’t repaid at once. Since Shared Interest was established in 1990, however, this has never happened.

 

Shared Interest provides a lot of information on how your money goes to help people in disadvantaged situations, with a lot of material each quarter and lots of content on their website. Last year, for example, the money invested helped make a positive impact on the lives of 470,000 individuals. 

Lend with Care

Microfinance site lending money to entrepreneurs and small scale projects

 

Minimum investment: £15

Fee: No platform fee

Typical financial return: 0%

Focus: Loans to individuals and small scale projects in the developing world

Lend with Care is an initiative of the poverty fighting charity CARE International UK. Lend with Care currently works in 10 countries, partnering with local microfinance institutions to provide loans to entrepreneurs and social or environmentally friendly projects.

It works by a borrower applying to one of Lend with Care's local partners for a loan, which then goes through the underwriting and approval process. If this application is approved, it is posted on the website which allows investors to fund it in increments of £15 or more. The terms of the loan vary, both in terms of the amount requested and the length of repayment. Once the loan has been repaid, you will receive only your principle back, and not any interest. Interest is paid to the local partners in the field who do the underwriting, and not Lend with Care. You can then choose another project to fund.

Kiva

Microfinance site lending money to entrepreneurs and small scale projects

Minimum investment: $25 (investments are made and repaid in US Dollars)

Fee: No platform fee

Typical financial return: 0%

Focus: Loans to individuals and small scale projects in the developing world

 

Kiva, a US company, is an international nonprofit and the most popular microfinance site in the world. Since they started in 2005, they have funded $1.3 billion in loans to more than 3.3 million borrowers in 78 countries. You can use Kiva's search function to search loans by topic, in categories such as women, eco- friendly, refugees or many others. 

It works by a borrower applying to Kiva for a loan, which then goes through the underwriting and approval process. If this application is approved, it is posted on the website which allows investors to fund it in increments of $25 or more. The terms of the loan vary, both in terms of the amount requested and the length of repayment. Once the loan has been repaid, you will receive only your principle back, and not any interest. Interest is paid to the local partners in the field who do the underwriting, and not Kiva. Since its beginning, loans through Kiva have achieved a 96.9% repayment rate. You can then choose another project to fund.