‘Tis the season… to give! Financially savvy charity

While this blog is primarily about how people can enrich themselves, I haven’t yet addressed another very important and similar topic: how people can enrich others.  Since the holidays are a time when people contemplate giving back to the community, their church, the poor, the environment, etc, I thought I’d share what my family is contributing to.

The Grameen Foundation is a microcredit organization dedicated to eradicating poverty.  They pursue this goal by giving low-interest loans to the poorest people in the world (and generally to women, who are more likely to use the money to better their families and community.)  These loans can be used to start or expand businesses, allowing the poor to literally pull themselves out of poverty.  The assumption behind microcredit organizations is that if poor communities are given access to reasonable credit sources (excluding “predatory” high-interest/fee loans), they can make economic advances akin to  wealthier individuals and communities.  Loans are often very small (in hundreds of US dollars or even less.)  Loan recipients might use these funds to expand inventory in a small road-side shop, or to purchase an additional cow to produce more milk. 

This theory has proven highly successful thus far, with 70% of the Grameen Foundation’s loan recipients rising above the poverty line (measured by wages of less than $1-2 US/day) within 5 years after receiving the loan.  The pay back rate of these loans is also very high (96% as of 2003.)  This is in part due to the fact that loans are given to groups of people.  Each individual in the group is responsible for entire group’s loans.  The group has a high incentive to ensure that its members repay their individual loans, or else the whole group loses access to its credit.

Microcredit is just one way a philanthropic individual can better the situation of those less fortunate around the world.  There are many charities out there, but I encourage you to give wisely.  Some groups make better use of their funds than others.  There are web sites like Charity Navigator or the Motley Fool’s ‘Foolanthropy’ section that help conscientious givers find charities that make the most out of the dollars they donate.

If you’re finding yourself a little cash-strapped this holiday (and many in the US and around the world are), you may want to consider alternative ways to give.  One thing I like to do is ask others to make a donation to the charity of my choosing, instead of buying me a gift.  This absolves me of 1) having to think of something for them to get me that I may not even want that much and 2) having to make the donation myself.  Often, my family members request the same of me, so we all end up donating to each other’s charities.  Personally, I find this more satisfying than collecting another “thing” for Christmas that I don’t really need, but that’s up to you.  (And besides, you can always buy yourself something later if you decide you really want it.)

Happy giving and Merry Christmas, Happy Hanukkah, etc,

Ward

P.S. The Motley Fool has a summary of the Grameen Foundation’s operations if you’d like to learn more: http://www.fool.com/foolanthropy/about/grameen.htm

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2 Responses to “‘Tis the season… to give! Financially savvy charity”

  1. John Hershberger Says:

    MicroCredit Enterprises is another outstanding organization with operating costs and overhead of less than 3% of their loan portfolio. Also, on their website, http://www.mcenterprises.org, see the Permanent Fund to Alleviate Extreme Poverty. Donations to the Permanent Fund are loaned out, repaid and then “recycled”–loaned out again and again for decades into the future. It’s worth a look.

  2. ‘Tis the season to give! Words of Ward Philanthrophy for 2010 « Words of Ward: Ward's Guide to Personal Finance and Investing Says:

    […] year I gave some guidance on how to find some worthy charities.  I’d like to renew my call for folks to help out those […]


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