As I mentioned in my Kiva post, I will donating a portion of all income from this blog to Kiva, a non-profit organization that loans money to entrepreneurs in developing countries. I have decided to support this charity because it embodies what I believe Trading Heroes is about.
Learning to trade well is essentially building a business that can make you self sufficient. Especially in Forex, leverage plays a key role in helping you make the most of your money. Of course that also means that there is more risk, but if we can manage that risk correctly, it should pay off in the long run.
In a similar way, loaning money to entrepreneurs in developing countries allows us to leverage the buying power of our currency to help them become more self sufficient. Yes, the risk is much higher than lending on something like Lending Club because it is harder to get a feel for the financial viability of a small business in a foreign country.
However, I believe that this is much better than just giving people money. It also allows us to “recycle” money instead of blowing it in one shot. Anywho, I made a little money from the advertising on this blog last month, so this is what I did with it…
The Business I Loaned To
For my first loan, I chose Oyungerel Baasanjav from Mongolia and made a $25 loan. She has a tailoring business and needed the loan to purchase string and wool for her business. She is married with two children and has been in business since 2008.
According to the description, she primarily makes gloves and scarves and business is picking up so she needs the additional materials. Her total requested loan value is $475 and it was filled pretty quickly. That equals 600,000 MNT (Mongolian Tugriks). Just for reference…according to Wikipedia, in 2008 public and private sector workers made an average of approximately 108,000 MNT or about $81 USD per month.
Why I Chose Her
Choosing Oyungerel had less to do with her and more to do with the local institution that qualified her for the loan. Since there wasn't much information on the borrowers, I decided to base my loan decision primarily on the local institution that was making the loan. The local institution in this case was XacBank a microfinance bank. They do full due diligence and have a 5/5 star risk rating (least risky).
What I found out was that XacBank makes these loans and does charge the borrower interest. Then they back fill the loan with Kiva funding and the Kiva borrowers get repaid from the loan payments. At first, this may seem like they are getting free money and in a way, they are.
But I'm OK with that for two reasons:
First, because they are taking the initial risk and putting out their own money. They may not get the loan back filled, so they have to be sure that they can live with the loan themselves.
Secondly, because it does cost money to do the due diligence for the loan and go through the application process. I would rather have them get paid for this so they can do it well. In addition, XacBank will give up to 9% of the interest paid back to the borrower in the form of a new savings account if they pay on time.
A final consideration, was the way that she dressed in the picture. I know that this is a little superficial, but if she is a good fashion designer, she should look the part. On top of that, if she took the time to dress well, she is probably more serious that someone who showed up in a t-shirt, flip-flops and shorts.
My Plan Going Forward
Since these loans are risky, my plan is to lend out each loan twice, then donate the money directly to Kiva's operating costs. I figure that this will get good use out of the money, while minimizing the risk of losing the entire principal.
If this is a cause that you would also like to support, I would love for you to join the lending group that I started on Kiva. It is called the Trading Heroes Lending Team. I don't benefit in any way by you joining the Team, it just a way for Forex Traders to come together for a common cause.