Microfinance

Microfinance institutions (MFIs) in developing countries provide essential capital to vulnerable people to enable them to carry on the vital activities of their daily existence - money for seeds to plant, material to make into clothes, a bicycle to transport goods to market.

Whilst it is possible to give, poor people are often too proud to receive charity and prefer to borrow what they need on commercial terms.

It can also be argued that charity does not provide the incentive necessary to lift people out of poverty.

I recent years the major banks and investment companies have started to develop a significant interest in lending to microfinance institutions (probably attracted by the high returns in relation to the very modest default rates) but the minimum lending requirements (normally at least 100,000 Euros / USD) are at present a barrier to individual investors.

Ethical Investments has established a distinct trading style "MicrofinanceUK", which acts as the sole UK agent for a company which has developed a secure online service to enable individuals to lend to microfinance institutions, village banks or even individual borrowers through a dedicated website.

To register for this facility please go to www.microfinanceuk.co.uk.

In due course we are also interested in establishing an Industrial Provident Society for Microcredit. By lending to micro-finance institutions in larger amounts, an IPS can help to reduce the final cost of capital to the end user. In addition, the IPS can reduce the risk of default by diversifying among different MFIs.

An IPS would also have the option to develop it own relationships with micro-finance institutions, for example with twinned towns in developing countries or in conjunction with charities.