— Instead of giving Christmas gifts to his family last year, John McWhorter donated money to budding entrepreneurs. His gift, administered through kiva.org, provided microloans to eight impoverished families worldwide, enabling them to start their own businesses.
The amount he gave? $200.
“I figured that was what I'd spend on my family to buy them stuff that they didn't need,” said McWhorter, 45, a handyman. He likes that the donation is given to families as loans, rather than outright charity. “I think that empowers people, … helps them take responsibility and helps to avoid creating dependency.”
For those seeking an alternative holiday gift, microloans are one way to give. And, little known to many investors, some microlending agencies offer relatively low-risk investment opportunities that can pay 2 to 3 percent interest, offering an opportunity for a modest return coupled with a chance to help budding entrepreneurs.
Some agencies accept tax-deductible donations, starting from $1. For investors, some opportunities are available with investments as small as $20. In both cases, the microlending organizations pool the money — sometimes together with funding from foundations or the Small Business Administration — to lend to disadvantaged individuals. For seasonal gifts, donors can also buy products made by businesses funded by the agencies.
The goal is to help recipients — both in the United States and abroad — achieve financial stability by building their own business rather than relying on handouts.
This kind of financial empowerment is a "panacea," said Wendy Baumann, president of the Wisconsin Women’s Business Initiative Corp., a microlending agency. “If individuals are sound, they can provide education and health coverage for their family … and don’t need to be handled through welfare.”
Microlending agencies make tiny loans to entrepreneurs who lack access to business credit or bank loans – typically low-income, female and minority individuals. In the U.S., microloans can range from $200 to $150,000, at annual interest rates of 6 percent to 15 percent. Repayment rates average about 93 percent, according to microlenders interviewed for this story.
In the U.S., 260 microlenders have assisted some 116,000 entrepreneurs so far this year, according to Elaine Edgcomb, a microfinance expert at the Aspen Institute. Over the last five years, microlending agencies awarded $1 billion to more than 1 million participants, according to the Association for Enterprise Opportunity.
Here are some success stories:
Nada Bunnell, 65, built her photography business with help from Appalachian Community Enterprises, a microlending group in Georgia. She had been laid off in 2000, when the catalogue company she worked for closed its doors. After applying to work at dozens of companies with no success, Bunnell found ACE, which lent her $10,000 to buy photography equipment and turn her hobby into a business.
Today, Bunnell owns Gentle Presence Photography and dreams of expanding beyond her rural mountain area. “I’m hoping to grow my business enough to travel,” she said.
Bunnell’s cards and photographs are among the holiday gift items that ACE is promoting this season. ACE also takes online donations starting at $10.
Jason Burns, 24, started a car-detailing business, after receiving an $8,000 loan in 2005 from ACCION, a microlending agency, He had been turned down by five banks. At ACCION’s New Mexico office, he took classes on running a business, managing cash flow, and saving for retirement.
Within two years, Burns repaid the entire three-year loan. His business, Recapturing Vehicles, now grosses $100,000 annually and employs two full-time workers. Last year, Burns started giving back to the organization, donating $50 a month.
“If I spend (the money) on whatever else, whatever I buy is just becoming more and more worthless,” said Burns. “The money I give back to ACCION is actually growing and helping someone else.”
ACCION New Mexico-Arizona-Colorado accepts donations online. ACCION USA, which has a larger loan fund, pays interest rates up to 2.5 percent, giving donors a return on their investment.
Octavia Manuel-Wright, 32, was a single mother of two teenage sons. She had a bankruptcy record and owed $20,000 in school loans and medical debt. Although she worked many hours as a nurse, “I was just barely getting by,” she said.
Last year, Manuel-Wright received a $45,000 loan from the Wisconsin Women’s Business Initiative Corp. to start a health care assistant training center. Her Community Healthcare Training Center now has four employees and grosses up to $30,000 a month. In May this year, she won another $15,000 corporate grant by submitting the business plan that WWBIC helped her develop.
Now Manuel-Wright plans to hire more staff and open her own nursing home. She also has hope for the future. “I know I will have something to leave for my kids,” she said.
This season, WWBIC is offering gift packages, which include chocolates, coffees and products made by its microlending clients. These are available by mail or at its coffee shop, Coffee with a Conscience.
eBay gets in the act
MicroPlace.org, a microlending site owned by eBay, also has a holiday special. When donors give $20 on behalf of an honoree, MicroPlace.org will send a handcrafted piggybank to the honoree. The donor chooses the country receiving the $20, which can be the United States, and earns 2 to 3 percent interest on the investment.
For donors like handyman McWhorter, microlending organizations offer a meaningful way to share the holidays. “I'll probably lend another whack of cash this Christmas,” he said. “In the small planet we live on, I know that my prosperity is dependent on creating conditions for others to prosper.”