Microfinance Growing as a Highly Leveraged Philanthropic Strategy

What would you give to lift 50 million people out of poverty? According to Business Week, former retail furniture entrepreneurs John and Jacque Weberg are pledging $50 million to microfinance programs run by Opportunity International to do just that.

Here's how theGrameen Foundation, which has done much to pioneer the concept, defines it. Microfinance helps people escape poverty by giving them collaterol-free loans and other financial services to support income-generating businesses.  As each loan is repaid, the money is distributed as loans to others, thereby multipying its impact.

Although Weberg's gift is the single largest ever given to a microfinance organization, according to Grameen's president Alex Counts, it is outgunned by Pierre Omidyar's gift to Tufts University to create a fund to invest in microfinance.

Omidyar's angle on taking microfinance to scale (empowering all the folks globally who could benefit) begins but doesn't end with philanthropy. Because the repayment on microfinance loans is 98%, these social entrepreneurs also believe they form the basis for viable investment products.

The most stunning quote from the Business Week article comes from Vinod Khosla, founder of Sun Microsystems and a partner at venture capital firm Kleiner Perkins, from a speech he gave at Stanford,

"I can't think of an economic phenomenon after capitalism that's more important than microfinance. I call it enabling the power of ideas and entrepreneurial energy for the other half.

Susan Herr