Micro credit: not sexy, but it's got teeth

Part of the intention of writing this blog is to inspire people to take charge of their own financial future. Financial literacy is not rocket science and any one who makes you think it is, is probably trying to scam you or is indeed a financial wizard / geek. In either case I suggest not to get involved.

I strongly believe, and with me many others, but let's talk about me, that in current economic environment, ordinary hard working savers and retirees are the ultimate losers. I mean here in Europe bank savings are looking more and more "unsave" now savers at Cyprus banks have to take a 6 to 10% haircut on their supposedly secure savings to help bail out the banks and the Cyprus government. It makes you wonder what this means for savings in Greek, Italian and Spanish banks and ultimately any other bank in Europe. But this is not the biggest concern I have. The biggest concern I have, is that interest rates paid on savings are so low, that with inflation correction, savings have a negative growth. This is all partly caused by the money printing being done by the central banks of Europe and the US (the ECB and the FED), which in turn is inflating (mainly) stock prices.

So some time ago already, I figured: what can I do to escape all of this and just borough out my saved money so other real businesses can use that money to build new things? It turns out that micro credit funds are the answer to this question. Micro credits are small loans given to real people around the world (mostly in less developed countries), that they will use to invest in their small company. Below is a video that explains this principal nicely:

How Kiva Works from Kiva on Vimeo.

So Kiva is a website that let's you micro finance some poor people, a bit snobby, if you ask me. But the work micro finance institutions do actually makes sense to me. I reason that especially poor people will repay a loan whenever they can, as this means survival and a better live for them. They do not loan to leverage a business, or even worse consume, but to actually build a better existence for themselves and their families. And this drive to repay is reflected in the results of two micro credit funds that I will highlight below. But first, let's find out more about micro finance in below video.

Looking at the returns of the Micro Credit funds of the ASN bank and Triodos bank I am inclined to say that they are mostly uncorrelated with the big western financial markets. Below graphs show that returns remained steady as other relatively "save" equities like bonds made significant drops in the 2008 crisis, that will keep you awake at night.
More info on Morningstar

More info on Morningstar

So this looks like old-fashioned saving to me. Sure there are risks, but negative growth on the current way of saving is a sure way to loose your money if you ask me. I rather take willingly and knowingly a small risk, get a nice return and in the process help other people build a future.


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