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Pay-it-forward model shows potential for microfinance in developing nations

Ten years ago, microfinance was celebrated with the Nobel Peace Prize for its potential to break people out of poverty. Today, the microfinance industry has grown to hundreds of institutions serving more than 150 million borrowers in the developing world, but is widely criticized for exploiting the world’s poor and, ultimately, making poverty worse.

The reasons for this are fairly straightforward. Many for-profit microlending organizations are more focused on expanding their reach and profits. These large organizations now often give relatively small loans with enormous interest rates – often upwards of 40 percent to 100 percent – which, along with other problems like inflexible payment schedules, effectively trap borrowers into a spiral of debt.

Now, leaders in the industry are searching for a better way to help the poor lift themselves out of poverty. One approach taken by a few organizations is to ask borrowers not to repay their loans in the standard way, but pay them forward to another person in need.

Thriive is a small organization founded in Sun Valley, Idaho, that has proved this model can work. The organization currently has programs in just five countries, providing donor-funded loans to small-business entrepreneurs in developing nations that are not repaid to the organization, but “paid forward” in the donation of services, products and job training.

“[Thriive] is founded on the idea of helping to create and support a more compassionate brand of capitalism,” said Sharon Barto Gouran, Thriive’s Seattle-based development and major gifts officer, in an interview with Humanosphere. “We’re using the strengths of the free market, but with a humanitarian element.”

Barto Gouran recounted her favorite story of success from one of Thriive’s loans, which not only helped a woman jump-start her business, but helped an entire community in need. The loan recipient, Nam Than Long, used her $10,000 loan to purchase industrial sewing equipment, and repaid the loan in the donation of more than 1,100 of her signature life vest backpacks to students from poor, flood-prone areas of Vietnam who cannot afford this life-saving luxury.

With the help of the new sewing equipment, Than Long also expanded her sewing business and created more than 30 new jobs for women.

The program in Vietnam was one of the first developed by Thriive, which now has programs in Nicaragua, Kenya, Palestine and most recently, Guatemala.

“All of the places that we operate have either delicate economic systems or are coming out of delicate economic and political infrastructures that make it difficult to start individual business,” Barto Gouran said.

Thriive’s model works under the assumption that loan recipients will indeed pay the loan forward. Very few of the loans aren’t paid back, according to Thriive, because the majority of entrepreneurs are so inspired by the impact their gifts have on others in the community that they continue to give, with 72 percent continuing to give years after receiving financial support.

Thriive is unique, but not one of a kind; other organizations, like Spirit in Action, use a similar pay-it-forward approach to support economic development in various countries of Africa and Asia. While the movement to the pay-it-forward grant models gains traction, profit-focused microfinancing continues to make its negligible dent in the fight against poverty.

“Poverty should be eradicated, not seen as a money-making opportunity,” said Muhammad Yunus, the pioneer of microcredit himself, in an op-ed for the New York Times.

“The community needs to reaffirm the original definition of microcredit, abandon commercialization and turn back to serving the poor.”


About Author

Lisa Nikolau

Lisa Nikolau is a Madrid-based reporter for Humanosphere, covering gender equality, indigenous rights and poverty in Latin America and worldwide. Find her on Twitter at @lisanikolau, email or see her latest work at