When HumanKind first launched, I wrote about Kiva, a microcredit institution that lets you lend money, as little as $25 at a time, to entrepreneurs in developing countries all over the world. You don’t earn interest on your loan, but it does get repaid.
There’s a new organization that takes this idea a giant step further, turning microcredit lending into a sustainable enterprise by letting investors earn a profit. It’s called MicroPlace, and it just launched in October.
“It was really just me and a business plan when eBay brought it in-house in June 2006, and it became a wholly owned subsidiary of eBay,” says Tracey Pettengill Turner, who came up with the idea for MicroPlace after doing a fellowship with the newly formed Grameen Foundation in Bangladesh in the late 90s; Muhammad Yunus, the founder of Grameen Bank, won the 2006 Nobel Peace Prize for his pioneering work in microcredit.
I love Tracey’s work not just because she’s found a way to use a sustainable, profitable business to partner with the poor, but because she was moved to do so after making personal, one-to-one connections.
Tracey talks in this interview about meeting the very people who were benefiting from loans through Grameen. We can’t all go to Bangladesh to get a new perspective. That’s always been true. What is available to us today is new media: MicroPlace is one way to create personal, meaningful connections between the world’s investors and the world’s poor. Turns out we’re all businesspeople, just with different definitions of what's enough capital. Check it out.
HK: What inspired you to do your own thing after working with Grameen Bank?
TT: I’ve always been passionate about the idea of connecting business ideas and the power of capitalism with social change. So when I went and worked for the Grameen Bank and met borrowers and understood the power of microfinance, it was just the perfect fit with what I’m passionate about. I’m really an entrepreneur at heart and in training.
What we’ve seen over the last few years is a huge amount of really exciting innovating in microfinance. All of these new business ideas were just kind of spinning around and gave me a really rich base to look at all of the different potential ideas.
The one that really jumped out at me that leverages some of my background is the idea of enabling the everyday investor to participate in microfinance.
Most of the investment opportunities before MicroPlace were for high net worth, accredited investors or institutional investors. There weren’t really any easy and convenient ways for the everyday investor to participate. And I thought that was such a shame, because there is so much enthusiasm in the western world to participate.
I think if you go to the heart of what microfinance is all about, it’s not about charity, it’s about investing in the world’s poor. It’s about treating them like the businesspeople that they are. Enabling the borrower in Bangladesh all the way back to the investor in Des Moines to operate in a profitable, sustainable way, we get a virtuous cycle that can operate in perpetuity.
Charity has its place. But the magic of microfinance is the sustainability of it, and that’s what we really wanted to focus on.
The other part is that we really wanted to build something that helped in scaling the industry. Today we reach about 110 million people or so with microfinance, but there’s a billion out there that could benefit. We’re hoping we can help grow the industry.
HK: What obstacles did you run up against?
TT: It’s a very, very simple idea. We’re just trying to connect the everyday investor, who has as little as $100 to invest, with the working poor, who should be treated as businesspeople. Simple concept. The execution of it is extremely difficult; that’s why it took us so long to launch. We had essentially a year and a half of putting all the brokerage infrastructure in place, making a safe, trusted, bulletproof web site, and address any fraud issues that could arise.
HK: How did your work bring you to the Grameen Foundation?
When I first graduated from college, I worked in East Africa, in Somalia and Sudan and Kenya. And I wasn’t working in microfinance then because nobody knew what microfinance was. It was just in pockets around the world at that time. But I just fell in love with the idea of using business logic and business ideals and applying them in social change situations.
Then I went to Stanford business school, I read about Muhammad Yunus, and ACCION’s work in Bolivia, and I just said, “Oh, I gotta go.”
The day after graduation I got on a plane. The work that I did for the bank was around how to figure out, once a borrower accesses a loan, what do they do with the capital? What kind of jobs should they do, what kind of business should they own?
There was this one woman I met when I was working for Grameen from this really rural village in northwestern Bangladesh, Mina. [Ed note: That's Tracey and Mina in the picture at the top left]. Here I arrive in this Jeep and I’m wandering around this village. I’m only 5’4” and she was 4 feet tall. She wore this gigantic black burqa that was covering her, head to feet, and she grabbed my arm and she marched me through the village and she sat me down at this handloom that she brought with a loan from Grameen Bank. And then she marched me to her house which she had just built with the profits form selling her fabric, and she introduced me to her children who were all in school for the first time because she didn’t need to keep them home working. You see the twinkle in their eye when they say, “I did this with the sweat off my brow.”
It’s pretty exciting how the industry is growing, and yet default rates continue to stay very low. Repayment rates are above 97 percent worldwide. Consumer loans in the U.S. is more like 85 percent. A poor woman in Bangladesh is a better credit risk than we are here.
HK: Why do you think that is?
TT: There is this great innovation in the industry where instead of you and I here going to the bank and filling out paperwork for a car loan, what Professor Yunus pioneered is this idea of a lending group. So you go out and find four other people and then if you take out a loan and you default, everyone in your group is responsible. It creates kind of a sense of social collateral. When I form my group, I’m only going to allow people in my group who I trust.
It also means if someone has a rough month or gets sick, and they’re good people who are not trying to default, then their group is there to catch them when needed. Not all microfinance is that way, there are individual loans as well.
No matter how many bombs are falling from the sky, or how much political turmoil is going on, the market still works at the local level. Moms always have to feed their kids. Microfinance borrowers are generally poor women. They have to go to the market and sell milk or sell eggs or sell baskets. No matter what’s going on in the world, the market’s always open.
HK: What obstacles prevent more investors participating in microfinance?
TT: We’re just getting off the ground. I think that microfinance is still new to people, and because it’s the global working poor, you don’t naturally think “invest,” you naturally think “charity.”
But microfinance is really changing people’s thinking of the working poor – instead of seeing them as a problem, seeing them as an opportunity. Think about them as an investment. That honors them and their hard-working nature. We’re really trying to change people’s thinking, and that’s just going to take some time for people to digest.
HK: We’re talking a lot at HumanKind about individuals increasing their own many small, worldwide connections as a path to peace. What is the connection between the woman in Bangladesh and the investor in Des Moines? How does the small investor benefit from helping a poor working woman on the other side of the world?
TT: This is not my expertise, but macroeconomics would argue that free trade raises all boats. What basic macroeconomic theory tells us is that if we were to remove all cross-border trade restrictions, it would help everyone. The poor person in Bangladesh would be helped because ultimately the economies of all would be strengthened.
What I love about microfinance is that I could invest in microfinance organization, earn a return, doing what’s in my best interest, at the same time enabling the working poor in Bangladesh to lift themselves from poverty, which also has an impact on their local economy.
I think Jeffrey Sach’s point in his book is the world is so rich that, for the first time, we can afford to solve poverty, whereas 50 years ago the world wasn’t a wealthy enough place. But I think -– and he’s an absolute hero of mine -– I’m much more interested in solutions that are sustainable. Because with charity, you make a donation and then it’s gone. There’s no way to make that sustainable.
With microfinance, it is; it’s a sustainable and virtuous cycle.
HK: You have this huge new media partner with eBay. How are you using new technology to create a global microfinance community?
TT: We’re starting by leveraging eBay’s reach. So eBay’s got a wonderful base of customers who are very socially conscious. We’re reaching those people who are often small businesspeople themselves and connecting them with small businesspeople in less developed countries. It’s just a wonderful connection to be able to make. We’re really leveraging that community base first, and then we’ll go from there.
HK: Thanks so much for talking with us, Tracey.