small business

Boosting a business with a microloan

Which organizations to support?

Experts say deciding which organizations to support isn't easy. "For the average person, they often can't tell," says Keith Weigelt, professor of management at University of Pennsylvania's Wharton School. "Most of these microlending agencies are nongovernmental organizations, so they aren't regulated. I'm sure there are some dishonest representations."

You can always look through an organization's Web site, call them on the phone and see if they pass your sniff test.

Tim Ogden, editor-in-chief of West Chester, Pa.-based Philanthropy Action, on online journal for donors, recommends four steps in looking for the most suitable group.

  1. Determine which geographical areas you want to support. For example, ACCION has an emphasis on Latin America and Grameen on South Asia and Africa.
  2. Look for client protection mechanisms. Microfinance lenders should be making sure their clients aren't taking loans from multiple organizations.
  3. Seek out organizations that are committed to savings programs as part of microfinance. Some organizations will match savings built by lenders. "Evidence points to the fact that people benefit more from savings programs than lending," Ogden says. "You help people not just in finance, but to build their own assets. Eventually they don't need to borrow from others."
  4. Look for organizations that provide services to borrowers beyond just lending them money. "If you take an unskilled, illiterate woman, the likelihood that she's equipped to run a profitable business is not high," Ogden says. They can use assistance in business training, literacy, financial education, nutrition and health, he says. "Why not use that (the microfinance institution) to deliver additional services."

Roodman recommends checking how much of your money might end up going to an organization's overhead, noting. "You don't want them channeling all your money to themselves."

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