According to Muhammad Yunus, a little can go a long way. The Nobel Prize-winning economist is credited with the development of microfinance, in which small loans are given to underserved people to help them start their own businesses.
The concept has taken on many permutations since Yunus created Grameen Bank in Bangladesh, what is considered the first microfinance company.
For example, some nonprofit organizations have changed the concept to microdonations, in which a large volume of small donations can help a significant amount of people, as more donors can afford to give.
Yet some nonprofits are working with the original microfinance and microloan concept, such as United Prosperity, in which donors can act as guarantors for a microfinance loan to an underserved entrepreneur.
Through the United Prosperity website, donors can view the profiles of poor entrepreneurs who are seeking loans, and donate small or large amounts of money (there is no minimum donation amount) to the business or entrepreneur of their choice.
When a set amount of donations is reached, United Prosperity issues a cash-secured guarantee to a bank on behalf of the microfinance institution (MFI) that uploaded the entrepreneur’s profile. The MFI is then issued a loan from a local bank, which then lends the money to the entrepreneur.
After the entrepreneur repays the loan to MFI, which in turn repays the bank, the donor’s guarantee is returned and can either be withdrawn or can be used for another loan.
The value of this concept is both in the microfinance and the guarantor aspects – because loan guarantees are only a fraction of the total loan amount, a small donation goes a longer way than it would in the traditional donation format.
United Prosperity is the first person-to-person loan guaranteeing website, and aims to become a self-sustaining business with the objective of combating global poverty.