Personal Finance Ideas

Micro lending in India

One of the comments on my previous blog post on Micro lending points to a couple of micro lending opportunities available in India. As I mentioned in my updated post, MicroPlace is available only to residents of the USA.

The two sites mentioned in the comment, Dhanax.com and RangDe.org have been on my radar for a month or so now. I am still not convinced about how secure the organizations that run these sites are.

The first site I tried was Dhanax and I could find only two organizations that we registered as borrowers. Also their page accepting Bank and other personal information was on Http and not secure (https). I did send a couple of mails to them about this and got no response. That is one of the reasons I have not recommended this site. If an organization does not respond to mails from people registered with it, then I don't think they are yet ready to be entrusted with money.

I started looking at RangDe fairly recently. Again the site is not secure, but they seem to use the ICICI secure site for credit card transactions. So atleast that information goes over the web via a secure tunnel. But the reason I have not committed yet is that their fee structure is something that does not make sense to me yet. The investor get 3.5% interest and the fees is 5%?? Also most microfinance loans are at interest rates in excess of 20%. So I am kind of not yet sure on the 8.5% rate. But I have still not close out on this one.

I will post an update once I spend sometime with these two sites. If any of my readers have indeed used these sites, I would appreciate any comments or feedbacks. Also if you or someone you know are involved in these sites/companies, I would like to hear from you too..

Update (20/Apr/09)

• I have got some kind of a response from Dhanax. They say they are in the process of changing their site to use Https. Let us wait and see.
• Also I have taken the plunge into RangDe. Though I have not yet taken this to be a full fledged part of my ML portfolio, I have taken the first step now. Lets see how it progresses.

Micro Lending – Invest for Good

Micro Lending has been around here sometime now. It aim at providing small loans to the poor to help them run a business. These loans are usually very small amounts, around 25-100 USD to the poor in developing nations. The problem is that it is usually difficult for an individual to be a part of micro finance.

Microplace is an initiative from eBay and helps you as an investor to connect with institutions that are in micro finance. You can invest as little at $25, but have an overall impact on helping someone. Do note most micro lending institutions will provide loans at interest rates of around (20-30%), but the highest interest rate listed in MicroPlace is around 6%. This is still way above what you can get with a CD in a bank. The big difference is that these are unsecure loans and you can loose money. (I have been using MP for the past 6+months and have not lost anything yet)

This is not the place to look for wealth building, but is something that I thing everyone should have as a part of their portfolio. This is a kind of Charity, but without having to give your money away.

Good for you, and good for your money too!!

Note: MicroPlace is currently available only to residents of USA

Technorati Tags: MicroLending,MicroPlace,MicroFinance

Types of Investments or Asset Types - 2

Read Types of Investments or Asset Types – I

Stocks/Equities

This is perhaps what most people think of when you mention Investments. When you buy a share or stock in a company you are buying a piece of the company itself. Thus stocks can provide you with one of the highest rate of return, but also offer a very high amount of risk. Stocks are very complex to pick can have their own post. But basically, stocks should be part of any portfolio if you plan on any decent growth in your wealth.

Liquidity : High; Returns : High; Safety : Low

Mutual Funds

Mutual Funds are basically a portfolio of assets managed by a professional fund manager. Since multiple people invest into a mutual fund, this also means that the portfolio of a fund is not restricted by your cash availability (as your portfolio will). This allows a fund manager to take some long term high value calls that you personally may not be able to. For the work done by the fund manager you pay a fund management fee. Also mutual funds allow you to hold some assets that may be too costly to own on your own (e.g. Real Estate).

Usually equity MFs have lower risk that pure equities as they are usually actively managed and also they are more diversified. More on MFs later.

Liquidity : High; Returns : Medium; Safety : Medium

Bonds

Bonds are basically government or company debt that is tradable. Bonds carry an fixed or floating interest and a maturity period. Interest payments may be compounded or paid on predefined intervals. You can think of this like a fixed deposit, but that is traded. Also bonds are usually long term (though there are US treasury bonds with maturity as small as 3 months).

Liquidity : Medium; Returns : Low-Medium; Safety : Low-Medium

These are most of the common asset types. We will discuss some of these types in detail in later posts.

Liquidity - Revisited

Another thing you need to analyze before you invest is around Liquidity. Liquidity analyses how long will it take for you to convert your investment to cash without major loss of value. Again like with Risk, the most liquid of investments usually do not have a very high return. But the relationship between liquidity and return is not as clear as with risk. For example, real estate is a very illiquid asset, but this year, it has had very bad returns. Similarly, Gold is an relatively illiquid asset, but has had decent return this year.

But it is important for you to understand liquidity as putting all your free cash into a very illiquid asset can actually erase all your investment, when there is some kind of emergency.

There are two important facets to be considered for liquidity

1. Ease of converting an asset to cash

How easy is it to sell a particular asset. For example it is very easy to sell stocks, while it may take a longer time to sell a house.

2. How much of value loss happens

When you make a distress sale does the asset loose a lot of value.

For example, a stock may be sold at any time with the availability of online share trading platforms and gets converted to cash in a day or two, but you may be forced to sell at a bad time (like now), when the sale may actually result in you loosing money. When people talk about liquidity they mostly only look at Point 1, but I would recommend that you consider both Point 1 and 2. You should spread your investments across different Assets Classes and Liquidity types.