Be Charitable and Get Your Money Back. Find Out How

Many of us are familiar with traditional forms of charity that involve donating money to a worthy cause, getting a receipt and then claiming a tax deduction the following year. This sort of generosity is to be admired, but it's not the only way we can use our savings to help others.

Over the past few years a great new method of providing others with financial aid has gained prominence: Micro-finance. The term at first can sound a little scary, like something you sleep through in the back row of an economics lecture, but it's actually quite a fun way to give, get involved and then get your money back. That's right - you get your money back.

Put simply, micro-finance is your chance to play the "little bank" to those around the world that need a small loan but do not qualify to borrow from the big banks. So how does it work?
I recently took the fast-growing and widely acclaimed micro-finance organization Kiva.org for a test drive by lending US$25 to a group of women entrepreneurs in Mali who needed money to purchase grain for their market stall so that they could expand their business and eventually open a shop. All in all, 43 lenders like me contributed a little money to raise the US$1,300 the women wished to borrow. Then over a set eight-month period the women made their monthly repayments until the loan was completely paid off and US$25 was sitting back in my account. I was so pleased with the results that I scrolled through the list of people looking for loans and decided to re-lend that US$25 to a Ugandan woman who needed funds to increase the variety of goods her retail store stocked. She wanted to grow her business and income to be able to afford to send her children to secondary school. The store owner borrowed a total of US$3,125 over six months and is currently on track with her repayments.

So why don't these entrepreneurs go to their local bank? Kiva says that in many cases that is not possible; the amount of money they need to borrow is too small, their regional area is not serviced by a bank, or they cannot afford the high interest rates charged by the banks. The beauty of micro-finance is that you can help these entrepreneurs grow their businesses, which ultimately benefits their community as a whole through job creation and an improved standard of living.

Kiva.org started in 2005 as the world's first micro-lending website for the working poor. By the end of last year, the San Francisco-based organization had provided loans to more than 239,000 entrepreneurs in over 50 countries and its loan books reached over US$100-million. The organization was named one of the 50 Best Websites of 2009 by TIME magazine.

Before you jump in and begin to lend a hand, it's important to understand how Kiva works.

• Lending through Kiva is not a donation and therefore is not tax deductible. However, it is possible to donate money to help fund Kiva's operations and this can be used to offset your taxes.
• Kiva has an outstanding 98% repayment rate which is achieved by field partners around the world who screen borrowers to make sure they have the ability to take on a loan. However, it is important to remember that there is a small 2% risk your funds will not be paid back. To reduce this risk, lend small amounts of money to multiple borrowers. You can also look up a borrower's history and see if they have successfully repaid Kiva loans in the past.
• Some foreign exchange risk exists. In many cases, the field partners absorb small swings in exchange rates, but if the value of a currency changes dramatically it might result in you receiving a smaller repayment. Kiva has tools to help you decide if a foreign exchange risk exists.
• And remember, because you are being charitable, you don't earn interest on the money you lend - not like a real bank.

Find out more and see who you can lend to, click here.

[Photo: Kiva borrower Dina Raore on a farm in Kenya.]