MicroPlace Review: Earn a 5% Return and Help Fight Poverty Too?

“A billion people around the world work hard every day to lift themselves out of poverty. They don’t want your charity. They want your investment. Invest today, earn a return, provide them with a livelihood.” – Microplace.com homepage.

Sounds pretty good, huh? Microplace is owned by Ebay, and is an SEC-registered broker of microfinance securities to individual investors. Loans are classified by level of poverty, financial return, length of investment, and geographical location. Recently, they got my attention by offering a 2-year loan with a promised interest rate of 5% per year, and a 4-year loan at 6%.

What is microfinance?
Microfinance is the supply of loans, savings, insurance and other basic financial services to low-income households and businesses, usually in areas where people don’t have access to formal banks. Microcredit is the extension of very small loans (microloans) to these poor entrepreneurs. A big name in this arena is the Grameen Foundation.

Tell me more about this 5% return…
Here is the loan listing page, and here is a link to the long 63-page prospectus for these Global Poverty Alleviation Notes (how’s that for an investment title?). I have looked through it, but haven’t digested it all. They are offered by Micro Credit Enterprises (MCE), a 501(c)(3) nonprofit organization. MCE seems to focus on women entrepreneurs, which have made up about 90% of their borrowers. They seem to participate in a variety of countries on 4 continents, from Armenia to Bolivia to Cambodia.

These notes are not a mutual fund, and is not FDIC or SIPC insured. These are unsecured debt obligations, with partial backing of “philanthropic guarantors”. Basically, wealthy individuals and/or groups promise to repay parts of this loan if there are enough defaults. The details are a bit vague, but there seems to be a networked agreement across multiple guarantors. However, risks definitely remain.

The actual interest charged to local microfinance institutions (MFIs) are stated to be from 8-10%. The rates paid by actual individuals are not stated, but can be as high as 30%. But these are often short-term loans to people with no collateral and few alternatives. The historical repayment rate is listed to be 96%.

What about MicroPlace vs. Kiva.org?
Kiva.org also lends small amounts to low-income entrepreneurs in the developing world. However, Kiva currently does not offer interest to lenders since it is a non-profit organization and is not registered with the SEC. Also, it has more of a person-to-person lending structure where you can choose the specific person you wish to lend to. However, I have read that Kiva is trying to offer interest in the near future.

Are you going to invest?
I’ve put some money to “work” at Kiva already, and my personal repayment rate on my completed loans from Kiva has been 98% so far. Given that I am still not very familiar with these investments, I still can’t treat the 5% Microplace note as a reliable investment. However, I am still leaning towards putting a chunk of money into it, because I do think significant principal loss is unlikely, and I want to give them a chance. If it works out, I think microfinance would really take off if there was also a financial benefit to investors.

Help A 6th Grade Teacher With Financial Education?

I received this intriguing e-mail yesterday from reader Ryan:

I am a 6th grade teacher who wants to do a month long lesson on financial education. I was wondering if you have any thoughts and/or ideas as to what you think should be stressed at such a young age? I have broken my lesson down into income, savings, and investing. I hear a lot of people say it is important to teach financial education but I find hardly anyone doing anything about it. Do you have any tips or could you ask your readers to send in their thoughts? Anything would be appreciated.

It’s very true. I am one of those people that think it’s crazy that our kids have to leave school knowing the date the Pilgrims landed but not understanding compound interest. But at the same time, how do you cleverly teach a six-grader something lasting about money?

Your thoughts? I have an elaborate idea for a money game that is either stupid or brilliant (I’ll share tomorrow), but I’d like to hear what you have to say first. Help him out!

DonorsChoose pfblogs.org Financial Literacy Challenge

DonorsChoose.org is another way the internet is making giving back more transparent and easy to do. (Learn about Kiva and ModestNeeds as well.) On the site, teachers submit project proposals for materials or experiences that they feel will benefit their students, and donors can choose which specific project to fund.

Proposals range from “Magical Math Centers” ($200) to “Big Book Bonanza” ($320), to “Cooking Across the Curriculum” ($1,100). Any individual can search such proposals by areas of interest, learn about classroom needs, and choose to fund the project(s) they find most compelling. In completing a project, donors receive a feedback package of student photos and thank-you notes, and a teacher impact letter.

In proper ‘finance geek’ fashion, blogger OneBigMortarBoard has formed a special Topical Challenge that focuses on projects that promote financial literacy amongst kids. Sounds like a good idea to me! I also like the idea of funding local schools, or even schools that you went to.

If you are looking for another direction for your charitable money, definitely check it out.

New Rules On Tax-Deductible Donations Of Clothing and Household Items

Before we move, we are planning to donate a ton of extra things like clothing, kitchen appliances, and books. Since this might be the first year ever that we can deduct charitable donations from our taxes (yay!), I wanted to check in what documentation I needed to obtain. Apparently, the government thinks too many people have been inflating the values of their old sweaters and other creative deductions:

– In 1986 Arkansas governor Bill Clinton deducted $2 for a pair of used underwear he gave to Goodwill.
– As president, Richard Nixon underpaid his taxes by $445,000, based largely on a huge deduction he took for donating his papers. In response the IRS limited the value of “self-created” documents to the cost of the ink and paper.
– Ordained ministers who tried to deduct their incomes as a charitable donation to themselves!

So, now we have to deal with these tighter requirements from the IRS:

You cannot claim a deduction for clothing or household items you donate after August 17, 2006, unless the clothing or household items are in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition, if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

To prove your items were in “good used condition or better” in the event of an audit, the best bet is to get receipts whenever possible and to take digital photographs of everything. Another good suggestion from this CBS Marketwatch article:

Take your donations in during the day on a weekday, when the organization is not so busy. Create your own little form that says “These clothing and household items are in good condition, in compliance with IRS rules.” And have the person receiving the items sign and date the form.

As you can still only deduct the “fair market value” of each item, I also found this valuation guide from the Salvation Army to be very handy. Finally, there are even more appraisal requirements if you donate any item valued at over $5,000 or “a group of similar items”. (Nothing in my entire house is worth five grand, so I’m not really concerned about that.)

Kiva Review: Giving a Virtual Hand Up, Not a Handout

I’ve written about Kiva before, but since I loaned some more money out today I thought I’d bring it up again. Kiva.org allows individuals to make loans starting at $25 to low-income entrepreneurs in the developing world, also known as microcredit. By doing so, you can provide affordable working capital for the poor (money to buy a sewing machine, livestock, etc.), empowering them to earn their way out of poverty.


So far I’ve lent money to people in Samoa, Ecuador, Ukraine, and Azerbaijan. Now, even though I’m not earning any interest on the money I loan out, I’ve read that the borrowers do pay interest on the order of 10% or more. However, these rates are still much better than their alternatives from loan sharks, and the interest goes to fund the local operations. You can view the interest “lost” as charity if you’d like. I kind of just see it as lending money to a friend – no interest, but you’re hoping to create some positive change. Payments are handled through PayPal, and they have a 100% repayment rate so far.

Here’s my favorite loan so far:

Vitolina owns a set of beach fales that she rents out to back-packers or picnickers passing through the village and works hard to keep the structures in good condition. Fales are simple, small open huts with thatched roofs built in the style of the traditional Samoan house. Vitolina?s fales are situated on a white sandy beach on the Samoan coast. She readily welcomes guests and provides them with a simple roof, unbeatable views, and home-cooked meals. She will use the loan to renovate the beach fales.

I would certainly pay for that! Now imagine that she makes a profit, builds more huts, and hires other Samoans as employees. She’s now making a self-sustaining living for herself and several other people. I get my money back, and can lend it out again somewhere else across the globe. Beautiful.

Modest Needs and Kiva: See Where Your Money Goes

One of the things I don’t like about some charities is the lack of specific impact. Where is the money really going? Here are two charities that use the internet to add transparency and interaction to your charitable giving. In addition, they offer a way to leverage your donation to create even better change.

ModestNeeds.org is a non-profit 501(c) charity, operating predominantly online, with a goal of helping people who live paycheck to paycheck survive past life?s unexpected speed-bumps and perhaps save them from a slippery slope to financial ruin or even homelessness. Most of their ?grants? are less than $300 and go for things like unexpected medical bills. You can see all the money requests, and even vote on which requests to fund. The neat thing is that it started with just one teacher giving 10% of his salary every month.
[Read more…]


Although we should be giving back throughout the year, I know I tend to give at the end of year. Thanks for all who responded to my charity suggestion post – my wife and I have decided where to give this year. We are giving at least $100 to each of the following:

Local Food Bank
Modest Needs
4-H National Council
School Alumni Scholarship Fund

Modest Needs (mentioned before), has found a donor that will match 100% all monthly donations for 2006. So I’m going to start a monthly match in 2006 instead of a lump-sum now.
[Read more…]

Gimme Gimme Gimme, err.. Give Give Give

‘Tis the Season of Giving. And that means tons of snail mail from all kinds of charitable organizations. Everyone wants of piece of your generosity. I haven’t even heard of half these organizations – Endangered seahorses? Home-bound elderly folk who want more rap to listen to? I’ve got a lifetime supply of ‘free with a side of guilt’ mailing labels.

My wife already has her list of organizations she plans to give to: 4-H, and her alma mater. Me, I was never very attached to my school nor their sports teams. Last year I gave to Modest Needs. So, I’m opening it up to you all for some suggestions, just leave a comment and I’ll check them out.

Hurricane Katrina

My have I been out of the loop. The damage done by Hurricane Katrina is much worse than I had thought. I don’t like to preach, so here are some links to learn more if you wish:

– FreeMoneyFinance is matching donations up to $1,000. You can donate anywhere you’d like, just e-mail him where and how much.
– If you are a blogger, you can join the Hurricane Katrina: Blog for Relief Day. If not, try the Katrina Help Wiki.
– My charity of choice is ModestNeeds.org.

Modest Needs: Small Change. A World Of Difference.(TM)

ModestNeeds.org is a non-profit 501(c) charity, operating predominanlty online, with a goal of helping people who live paycheck to paycheck survive past life’s unexpected speed-bumps and perhaps save them from a slippery slope to financial ruin or even homelessness. Most of their “grants” are less than $300 and go for things like unexpected medical bills. Much of it is based on the honor system, and all the money flow is very transparent and shown online. The neat thing is that it started (and continues) with a teacher giving 10% of his salary to others in need.

Instead of the $5 suggested monthly pledge, I only gave a one-time $20, but I thought I’d spread the word a bit as well. Happy Holidays!