Rewarding Ways to Invest Your Money
Andy Fleming writing on financial independence…
If you want to take more control over your investments, you can bypass the banks, bypass the stock market, and get straight to the borrower on a peer-to-peer lending site.
And if you don’t have a huge amount to invest, you’ll find micro-loan sites that accept investments as low as $25.
Platforms vary in profitability and some perform as well or better than traditional investment brokers, but if you want to invest your money in an ethically sound manner, this is a good way to do it.
The concept of microloans was started by Muhammad Yunus, an entrepreneur from Bangladesh who noticed a disturbing trend in the banking industry. Yunus realized that the people most in need of a small loan didn’t qualify for traditional bank loans; the amounts they needed were too small, and their income too slight to qualify for larger loans.
In 1976 Yunus made his first microloan to a group of 42 local basket weavers near his university. It cost him just $27, and the loan was quickly repaid with interest after the baskets were sold.
Anyone can quickly and easily register to begin giving out microloans to individuals or small businesses.
The amounts involved usually range from $100 to $1500, but can be as small as $25. Some microloan platforms loan money to entities outside of the US, particularly to developing or impoverished countries. This obviously implies some risk that the loan will default, but because the amounts are so small, you have less to lose. Microloans are also easier to repay; some microloan platforms claim default rates of only 3%.
Getting involved in the microloan landscape is as easy as registering for an account on one or more microloan websites. Here’s some of the best picks to get you started.
Sometimes referred to as the “ebay for small loans” because it allows lenders to compete by offering borrowers lower interest rates. Prosper has funded over $6 billion worth of projects in ten years, with no sign of slowing. They advertise an average of 7.35% returns and even outperformed the S&P 500 in 2012 and 2013. Most investment opportunities are for US-based individuals and businesses.
This site is more focused on for-profit microloans, rather than philanthropy. Since its creation, LendingClub has provided over $20 billion in loans. As a borrower, you can request a loan of up to $40,000. As an investor you can expect to see 5%-8% annual returns with very low risk of a default. LendingClub loans are paid back on a monthly basis, so you’ll receive an average of 3%-6% of your contribution every month. The majority of borrowers are individuals in the US.
3. RSF Social Finance
On the opposite end of the spectrum, RSF offers you the ability to contribute to a “Social Investment Fund” which is distributed to over 90 leading international organizations that support social and environmental progress. Their minimum contribution is $1,000 and it pays out about the same as a traditional bank CD (around 1% annually) but you’ll have the added benefit of knowing you’re contributing to well vetted institutions supporting a good cause.
As a lender, Kiva allows you to select from thousands of vetted borrowers all over the world. This platform doesn’t take any cut from the interest you earn and allows you to partially fund loans with as little as $25. International loans are handled by local microlending groups, who help manage the business plans of those borrowing money through the site. Kiva’s greatest strength is how personal it feels. You are able to see your borrower face-to-face and it’s easy to contact them through their local lending rep. This way, you can fully explore business plans and invest with confidence. You can even see the direct effect of your loan by reading monthly journal entries about the status of the projects you fund.
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