Is micro lending a good investment?
February 12, 2017 4:51 PM Subscribe
I am looking to invest a few thousand dollars, and I like the idea that micro lending offers the chance for relatively safe, diversified investing in individuals rather than companies. I could just put my money into an ira, but would rather do something positive in people's lives. What's been your experience?
I tinkered with it and got poor returns and no quantifiable proof that it was actually helping. Maybe it was, maybe it wasn't, there just wasn't much transparency and trying to chase down information about how a relatively small amount of money might be changing the world wasn't time effective. Ultimately I decided I'd rather invest in quality investments and donate to quality charities than to try to mix the two.
posted by Candleman at 5:37 PM on February 12, 2017 [5 favorites]
posted by Candleman at 5:37 PM on February 12, 2017 [5 favorites]
Investing in individuals is never "relatively safe."
posted by praemunire at 5:45 PM on February 12, 2017 [3 favorites]
posted by praemunire at 5:45 PM on February 12, 2017 [3 favorites]
There's no tax benefits to this, so you're losing a whole bunch before you even start. Max out all your regular retirement savings and then maybe think about doing this.
posted by miyabo at 6:11 PM on February 12, 2017 [2 favorites]
posted by miyabo at 6:11 PM on February 12, 2017 [2 favorites]
I agree with the advice above, first max out your retirement savings and then, if you want to help a few individuals, consider investing through something like Kiva.org.
You won't see much return, and the studies say that micro lending hasn't eradicated global poverty. Still, I always have a few loans going with them,and it's fantastic to know that you are making a difference to some individuals and their families. It's easy to keep reinvesting your funds once they are repaid, so I feel like it's more than a one-time charitable donation.
posted by rpfields at 7:39 PM on February 12, 2017 [1 favorite]
You won't see much return, and the studies say that micro lending hasn't eradicated global poverty. Still, I always have a few loans going with them,and it's fantastic to know that you are making a difference to some individuals and their families. It's easy to keep reinvesting your funds once they are repaid, so I feel like it's more than a one-time charitable donation.
posted by rpfields at 7:39 PM on February 12, 2017 [1 favorite]
To clarify -- you cannot microlend on Kiva as an investment. Kiva requires "lenders" to take on the full risk of their investments but does not pay them interest, so you are guaranteed a maximum return of 0% and your expected return is negative.
Prosper lists its typical return as about 7%. That's not great for an investment that is fairly risky and closely tied to the overall health of the American economy -- by comparison, the S&P 500 returned about 10% in the past year. And, as miyabo points out, peer to peer lending earnings are not eligible for being treated as tax-deferred holdings in a retirement account or for long term capital gains tax treatment.
posted by phoenixy at 8:55 PM on February 12, 2017 [3 favorites]
Prosper lists its typical return as about 7%. That's not great for an investment that is fairly risky and closely tied to the overall health of the American economy -- by comparison, the S&P 500 returned about 10% in the past year. And, as miyabo points out, peer to peer lending earnings are not eligible for being treated as tax-deferred holdings in a retirement account or for long term capital gains tax treatment.
posted by phoenixy at 8:55 PM on February 12, 2017 [3 favorites]
To clarify -- you cannot microlend on Kiva as an investment. Kiva requires "lenders" to take on the full risk of their investments but does not pay them interest, so you are guaranteed a maximum return of 0% and your expected return is negative.
Thanks phoenixy, I was not clear in my post. Although you never get any money back, it does feel like your small donation goes farther than a flat contribution to an organization, especially if your recipients pay you back quickly.
posted by rpfields at 9:12 PM on February 12, 2017 [1 favorite]
Thanks phoenixy, I was not clear in my post. Although you never get any money back, it does feel like your small donation goes farther than a flat contribution to an organization, especially if your recipients pay you back quickly.
posted by rpfields at 9:12 PM on February 12, 2017 [1 favorite]
peer to peer lending earnings are not eligible for being treated as tax-deferred holdings in a retirement account
FWIW, peer to peer lending like Lending Club can be done as tax deferred IRAs. I would not recommend doing so, however.
posted by Candleman at 9:30 PM on February 12, 2017 [1 favorite]
FWIW, peer to peer lending like Lending Club can be done as tax deferred IRAs. I would not recommend doing so, however.
posted by Candleman at 9:30 PM on February 12, 2017 [1 favorite]
Microlending on Kiva is not an investment at all. After they pay me back I've got to put in more money to re-lend.
posted by fixedgear at 4:54 AM on February 13, 2017 [2 favorites]
posted by fixedgear at 4:54 AM on February 13, 2017 [2 favorites]
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posted by capricorn at 5:09 PM on February 12, 2017