Basically you loan money to entrepeneurs in developing countries, through Kiva. It is called micro-financing as they are all for small amounts, and the typical lender contributes $25 – so 40 people lending $25 allows $1,000 to be made available.
The default rate is only 2.5%. This means if you lend $1,000 through it, you’ll on average get back $975. But instead of just donating $25 to a charity, you are helping fund $1,000 of business development.
I’ve just lent US$25 to a 24 year old in Nicaragua who is expanding her parents painting business. She is after US$1,000 and has previously paid back two prior loans.
I really encourage people to sign up, and loan money if they are able to do so. It’s a great innovation.