Money for Nothing: Charitable Deductions for Microfinance Lenders

This article proposes a novel and simple method for implementing tax benefits for lenders of small loans to poor people around the world. The explosion of the internet and social networking permits a U.S. individual to use PayPal or a credit card to lend to poor people. Kiva is one the earliest and the most successful of such microcredit websites. Kiva is a tax exempt organization. Lenders lending through Kiva do not charge any interest, but do expect repayment. The tax code in several countries recognizes the financial value of the right to use money for a period of time. However, under current law, lenders do not receive any tax benefit for the interest they forego when lending interest-free through Kiva.The article argues that taxpayers lending money at below-market rates or no interest through a tax-exempt microfinance organization should be allowed to take a charitable deduction for the foregone interest. Such benefits will help such microcredit organizations thrive and help reduce poverty.