Planting seeds during the holidays

Like many parents, my wife and I feel conflicted during the holidays. On the one hand, we experience warm nostalgic enjoyment as we watch the children rip into their presents. But, at the same time, we feel a need for them to understand the value of giving to others.

Unfortunately, there is no stronger force in the universe than my son’s focus on the acquisition of Legos during the month of December. It is unwavering, unbreakable and impervious to my paternal pleas that he think of others.

A few years ago, we tried something in order to better create a connection between our children and charitable giving. We gave each of them a sum of money to donate to the charity of their choice. The only requirement was that they had to research the charity, explain why it was selected and what portion of their donation would actually go to the recipients (after administrative expenses).

Our success was mixed. Each year, my youngest would select any charity that helps “puppies”. He wasn’t interested in considering other organizations and he didn’t spend much time in the selection process. For him, it’s just about the puppies. One year, my daughter selected a charity devoted to the eradication of breast cancer. She almost drove us to poverty with her unexpectedly effective fund raising abilities (we agreed to match whatever she raised). Another child tended to select only the Red Cross. Obviously a wonderful organization, but I am fairly certain that his selection was based of efficiency – “get it over with, get Dad off my back and get to thinking about my presents”.

This year, we decided to do something different. I’ve been reading about the positive impact of “micro lending” or “micro credit”. It received attention recently when the Nobel Peace Prize went to Muhammed Yunus for his work in this area. (I just ordered his book). The concept is that many of the world’s citizens are not able to avail themselves of loans from traditional banking systems. These people generally don’t have collateral or a credit history; the needed loan amounts are small and the ability to pay interest limited. Overall, not an attractive market segment for most financial institutions.

Micro financing institutions (MFIs) identify and qualify potential loan recipients. The MFI then raises the loan amount through the aggregation of smaller loans from individual lenders around the world. The MFI (usually a charitable organization) administers the loan and also its repayment.

Because of the Internet, participation in micro lending has exploded. Why? First, it’s a relatively easy way for lenders to contribute. You just use your credit card or Paypal account over the web. Second, the global reach of the Internet provides the greatest access to potential lenders. And, third, the Internet enables a direct sense of relationship between the lender and the recipient. Websites for most MFI’s include individual pages for each loan recipient. These usually contain a photograph and personal information about the person, their history of repayment of past loans and intended use of the proceeds. As the loan is repaid, the website is updated and each lender’s balance credited. And, here’s what I really find fascinating. With most micro loans, no collateral is required – yet the repayment rate is greater than 95%.

So this year, we gave each child money to loan through an MFI. There are many of them, but we are using Kiva. As the children read the stories about the different people seeking loans you could sense a connection being made. When I asked why they wanted to fund a given loan, the answers included things like: “they will use the money to hire someone else, which will help their community” or “they have repaid a loan successfully in the past” or “she is supporting her entire family with her business” or, more importantly, “the amount they need for their business is less than what all my Legos cost.”

I’m not sure how effective this will be, but it looks promising. My daughter was excited to tell us that her loan recipient (a barber in Uganda who is requesting a loan to expand his business) is now fully funded. And, my son is already looking for additional loans to fund after his initial loan is repaid.

Planting seeds.