Microplace offers 5% interest rate to investors

With our 401Ks hemorrhaging and the stock market falling, many are looking for a more stable savings/investment opportunity (see my earlier posts on SmartyPig and Pertuity Direct).

Microlending, which has been available for many years, is responding. Microlending organizations are now offering interest-bearing products. Microplace, a division of Ebay (NASDAQ: EBAY) has been offering interest-bearing microloan investment opportunities for some time, however they’ve just recently partnered with MicroCredit Enterprises to begin offering a 5% yield “Global Investment Note,” which benefits the working poor in more than 20 countries on four continents.


Jonathan C. Lewis, CEO of MicroCredit Enterprises, said in a company press release “investors realize that the greatest return in the world is the chance to lift someone out of poverty. Earning a fair financial return is just a bonus.” MicroCredit Enterprises is a private sector, anti-poverty program that leverages the private capital of high net worth individuals to provide small business loans to impoverished entrepreneurs in developing countries. This partnership with MicroPlace will make their investment opportunities available to investors who have as little as $20 to invest.

The term on these notes is 24 months (two years) and the fund focuses on women entrepreneurs, with women making up 89% of borrowers. The MicroCredit Enterprises portfolio reaches 505,000 poor worldwide. The global average interest rate charged to borrowers is about 31%. But this is much lower than predatory lenders and loan sharks who are often the only options for the working poor. Also, the repayment rates on microloans historically average 97%.

Like John F. Kennedy said, “A rising tide, raises all boats.” Most of our 401Ks and investments are sinking like Titanic. In the meantime, non-profit organizations are folding like card-houses, and Americans are cutting back their charitable contributions. Some may want to consider an alternative investment and charitable contribution combo (without the tax advantages of course). Why not consider raising some boats anyway?

Some things to remember with this kind of investment. While registered with the Securities Exchange Commission, it is not FDIC or SIPC-insured.

For more information about the 5% note, you can see the prospectus online here.

Here's some additional info from a Q&A session with MicroPlace:

How is Microplace able to offer such a high interest rate? what kind of interest rates are the Okicredit borrowers paying?

MicroCredit Enterprises is the security issuer of the 5% investment, which is called the Global Poverty Alleviation Note. MicroPlace does not determine the interest rate because MicroPlace is not the security issuer - MicroCredit Enterprises is.

The interest rates that borrowers pay is determined by the microfinance institutions (MFIs) in each country, so they vary depending on the institution and the borrowers. Oikocredit and other security issuers do not determine that rate.

The global average interest rate charged to borrowers is about 31%. But this is much lower than predatory lenders and loan sharks who are often the only options for the working poor. Also, the repayment rates on microloans historically average 97%.

Is Microplace at all afraid that the 5% note will cannabalize the other, lower-interest, investment opportunities?

Not at all. There is a very wide range of investment opportunities on MicroPlace, each offering different features, e.g.: interest rates, locations, issue-focused like women and fair trade, level of poverty, etc.

These are tough economic times, and many would be investors are looking for a little more liquidity in their assets. Would MicroPlace consider offering something like Pertuity Direct's mutal funds, only invested in microloans? This would give investors the security that they could get their money if they needed it, without waiting for a maturity date.

Funny you should ask! MicroPlace just started offering a liquid investment, which you can review here.

Are Okiocredit and MicroCredit Enterprises the same?

No, they are different security issuers. Here's how it works:

MicroPlace is the platform that allows investment transactions to take place, they are not actually the security issuers (where people purchase their investments). MicroPlace partners with issuers, like MicroCredit Enterprises, Okiocredit and Calvert Foundation who do the issuing. MicroPlace has partnered with them because they have decades of experience in the socially responsible investing space and deep roots across the globe in these communities.

Jessica Ward is a freelance writer based in Seattle. You can follow her musing on Twitter @jessc098.

Last week in review, and what to watch for this week.

1/21/09: Pertuity Direct Launches

1/22/09: Swap-A-Debt Launches
1/23/09: Liberia gets its first microfinance bank

1/23/09: Peer to peer loans make the Wall Street Journal

1/24/09: Some complain about Pertuity Direct using a “hard pull” on a borrower’s credit history.

What to watch for this week:
More information on Swap-a-Debt’s launch.
Exciting news from Microplace!

Where in the world is microfinance?

This is a summary/analysis of where US microfinance reaches. I'm profiling the organizations included below (in no particular order). I hope you find this as enlightening as I did. If you're aware of other organizations, let me know about them and I'll add them in.

• Opportunity.org - Offers microloans and services to 1.1 million working poor in 28 developing nations.
• Unitus.com - Unitus, an international nonprofit organization, works to reduce global poverty by increasing access to life-changing microfinance services.
• Globalpartnerships.org - Global Partnerships currently works with 21 organizations in Latin America.
• Villagebanking.org - FINCA International provides financial services to the world's lowest-income entrepreneurs in 21 countries so they can create jobs, build assets and improve their standard of living.
• Microplace.com - Owned by eBay since 2006, MicroPlace's mission is to help alleviate global poverty by enabling everyday people to make investments in the world's working poor.
• Endpoverty.org - Since 1985, Enterprise has equipped over 200,000 families all over the developing world to support themselves through their own entrepreneurial efforts.
• WholePlanet Foundation – A division of Whole Foods, provides microloans to microenterprises in ten countries. Unlike Kiva and others, it does not appear that lenders are able to choose the program or individual they would like to contribute to. Total authorized grants to partners as of October 2008 are nearly Eight Million Dollars US.
• KIVA.org – Kiva’s slogan is “loans that change lives” and is one of the leaders in the microlending community. The Kiva Web site allows loan funders to choose individual borrowers to fund, and Kiva estimates that by 2010 they will have facilitated $100 Million in microloans.
• WOKAI – Wokai, meaning “I go” in Chinese is an Oakland, CA startup and has provided just 43 loans in china, but is poised for growth—and has obtained substantial media in areas where its chapter membership is growing such as Seattle and San Francisco. Wokai reaches out to the Chinese-American community for help funding loans that recycle three times (to three different entrepreneurs) and is afterwards used for long-term lending by the lending partner in China.
• ACCION – Accion International is a long-term and global player in the microfinance world. They are active in 24 countries and the USA, and according to their Web site they have made $17.4 Billion in microloans. Their historical repayment rate is a stunning 97%.