Microlending is an international trend that involves giving a small loan that's meant to support entrepreneurship. These loans often go to women in foreign countries and were pioneered by Bangladesh's Grameen Bank and its founder Mohammad Yunus, both of whom were awarded the Nobel Peace Prize in 2006, according to the Boston Globe. Recipients are often citizens of countries in South America, Africa and East Asia.
Microloans are viewed as a more economically savvy way of providing funds to those who face financial hardships than traditional donations. The financial theory operates on the adage, "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."
By providing the funds to facilitate the start-up of a business, the lender is providing the recipient the opportunity to create a potentially sustainable source of income.
Historically, microlenders have a good chance of seeing their investment returned back to them. Approximately 97 percent of borrowers have paid back their microloans, according to CBS News. This is a higher return rate than many other uninsured investments.
There are two types of organizations that fund microlending programs - nonprofits and for-profits that use a broker. Nonprofits typically charge less or no interest to the borrower. In contrast, the use of a broker can bring the interest rate of the microloan to 30 percent, according to CBS News.
Microloans can be thought of as a socially conscious method of investing in the welfare of an individual on a global scale. The investment may provide a small return upon the recipient's success, and the small interest tacked onto the loan eventually goes back to the original lender.
Microloans are a unique way for individuals to become involved in the global economy, and the practice is growing in popularity across the world for both corporations and individuals.