Monday, June 30, 2008



In a recent article, columnist Subashini Ganesan notes that "according to Coinstar (a national business that distributes and maintains coin-counting vending machines), the American household has an average of $99 in spare change lying around the house!

"While you might want to lavish yourself, there is another way to use your 'small change' to drive big changes, globally. In fact, globally, $100 is often all it takes for a poor person to work themselves out of poverty. And MicroPlace, a subsidiary of eBay, has created a powerful tool for us to aid the world’s working poor while still receiving modest interest on our investments."

You might recall the previous post on microfinance and the discussion of Kiva in particular. NextBillion writer Rob Katz took some time to outline the differences between the two organizations last October. Here's an excerpt:

"As P2P Lending News explains, [t]he big difference between MicroPlace and that loans will be securitized (and therefore potentially trade-able), and lenders will earn interest. Unlike Kiva, lenders on MicroPlace invest in microfinance by purchasing securities. Funds generated by these sales are then invested in microfinance institutions around the world. MFIs, in turn, solicit clients, make loans and collect payments - they do their normal day-to-day business.

"Once client payments are in, the institutional investors receive their loan (plus interest) who can then pay back their investors - people who purchased those original securities. It's not as simple a model as Kiva's, but its differences are very important.

"First of all, Kiva is a non-profit. As Matt and Jessica Flannery have explained, it's very difficult to become a SEC-registered broker/dealer - even more difficult when you're running Kiva from your living room on the nights and weekends. MicroPlace, on the other hand, had the institutional and financial backing of EBay, allowing it to go through the complex regulatory application process and to put up the necessary money for the SEC to sign off. Upshot: Kiva wanted to be for-profit, but had to stay a NGO because it was a regulatory nightmare to register with the SEC. As a result, lenders on Kiva only receive their loans back - without interest. MicroPlace, as a broker/dealer, can pay interest to lenders - thanks to its ability to navigate the aforementioned regulatory maze.

"Secondly, MicroPlace adds a level of intermediation that Kiva doesn't have. With Kiva, lenders provide capital to MFIs, who then lend to clients. MicroPlace is a market for microfinance securities, not just requests for loans. Sure, it takes away some of the intimacy, but for the microfinance industry, it's a big step. Securitizing loans helps diversify risk, and allows microfinance investors to reach into the second and third tier MFIs that are having a hard time raising non-donor money."

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