A new path to peace is being paved with tiny loans

With so many distressing events being reported in today’s news, it is refreshing to hear the uplifting stories, the ones that invite us to hope that things just might be getting better in the world. One such bit of news is the story about the 2006 recipient of the Nobel Prize for Peace. This year’s Nobel was awarded to Muhammad Yunus and the Grameen Bank of Bangladesh for their work with micro-credit. So you might be asking yourself, “What’s the big deal? I don’t even know what micro-credit is, and if it has anything at all to do with Microsoft, I don’t want to know.” Well, let me share with you the hopeful story of Susan.

Susan is a 30-year-old single mother living and supporting her two children in Nairobi, Kenya.

With only a 4th grade education, Susan found herself working in prostitution and living in the slums of Nairobi.

One day, thanks to a neighbor, she found out about Jamii Bora, a microfinance bank supported by Unitas (www.Unitas.com), in Nairobi.

At Jamii Bora, she received business training and a small loan, and was able to start a small business mending clothes. A few years later, with continued support from Jamii Bora, Susan has been able to move her family into a safe house out of the slums and has been able to begin saving money for her children’s education — a major step toward eventually breaking the cycle of poverty for the next generation. Thanks to Jamii Bora’s micro-credit program, Susan is able to care for her children, live a life of dignity and hope for a better future for herself and her family.

What is so amazingly hopeful about Susan’s story is that through the efforts of micro-credit programs like Jamii Bora and Yunus’ Grameen Bank, 112 million clients — 112 million Susans — have been granted an opportunity to leave poverty behind!

Mr. Yunus and his bank have been in the business of providing micro-loans for more than 20 years. Even so, providing micro-credit to the poor on such a scale certainly was not a sure-fire plan from the beginning. In fact, they took a huge risk each time they lent money to an individual who frankly failed to meet the criteria for being a “good borrower,” as defined by conventional wisdom. With the Grameen bank, Mr. Yunus was following his own, very radical form of economics. When asked what his strategy was in forming the bank, he replied, “I didn’t have a strategy…I just did whatever was next.

“But when I look back, my strategy was, whatever banks did, I did the opposite. If banks lent to the rich, I lent to the poor.

“If banks lent to men, I lent to women. If banks made large loans, I made small ones. If banks required collateral, my loans were collateral free. If banks required a lot of paperwork, mine was illiterate friendly. If the client had to go to the bank, my bank went to the village. Yes, that was my strategy. Whatever banks did, I did the opposite.”

Since its shaky beginning in 1974, Yunus’ idea has taken root around the world and with incredible success! With millions of clients, and loan repayment rates of 95 percent or better, the Grameen Bank model has proven that microcredit banking is not risky business. According to a report that came out on at the beginning of November, as of the end of 2005, micro-credit had reached 82 million people living on less than a dollar a day.

Since the benefits of micro-credit extend to the families of the borrowers, it is estimated that, in 2005, micro-credit touched the lives of 410 million of the world’s poorest people, a number greater than the combined populations of the United States, Canada, the United Kingdom and Belgium. Wow. That’s hopeful.

I am so thankful that for the first time ever, the Nobel Peace Prize Committee used their highest honor to recognize Mr. Yunus’ courageous work in fighting poverty. It signifies an invitation to all of us to dare to hope for peace in the world, and to start considering “micro-credit” as much more than an obscure bankers’ term. Micro-credit provides the means out of poverty and the possibility for millions of individuals to live out their dreams of self-sufficiency and freedom.

In this way, micro-credit loans pave the path toward world peace, and promise to eventually make poverty a topic for our history books. In Professor Yunus’ own words, “one day our grandchildren will go to museums to see what poverty was like.”

by Caroline Fleming

Don't Wait Till April

The end of the `06 tax year is upon us, so it's time to put your house in order. Here's a list of five places to start

From an investment and taxpaying viewpoint, 2006 has been a pretty good year. The stock market is hitting new highs, important tax breaks for education savings were extended. Still, if you haven't done so already, you should take a hard look at your income and investments with an eye toward Apr. 15. Sure, that's months away, but you only have until Dec. 31 to make some smart moves that can produce big savings or avoid a bone-headed, expensive mistake. There weren't nearly as many tax law changes in 2006 as in the past few years, but here are five areas you need to check. In fact, the sooner, the better.


1. Charitable Donations
Before you write that check to your favorite charity, think about making the donation with appreciated stock. Giving shares directly to the institution allows you to take a charitable deduction for their full market value. If you sell stock and then make the donation from the proceeds, you'll have to pay tax on your gains.

Don't wait too long to tell your broker that you want to make such a donation, warns John Gay, a financial adviser at Frisco Financial Planning in Frisco, Tex. "A lot of people intend to do it, but it can take a week or two to complete the transaction," he says. Most religious institutions and well-known nonprofits can easily accommodate a stock donation, but some may have their own red tape. If the transfer isn't completed by Dec. 31, the deduction won't count for 2006.

This year and next also afford an opportunity if you are taking distributions from your individual retirement account (it's mandatory for those 70 1/2 or older). Sums of up to $100,000 from your IRA donated to charity won't count as income to you. That can help you avoid triggering other problems, such as getting pushed into a higher tax bracket.

2. Retirement Plans
You can make contributions to IRAs for 2006 up until Apr. 15, but there may be better plans for you--and those require you to act before yearend. For instance, if you're self-employed, a 401(k)-like tax-deferred account known as the Single K has the same pretax contribution limit as a 401(k)--for 2006, $15,000 a year withheld from salary (or $20,000 for people over 50). But it also adds a profit-sharing element that can exceed those amounts, allowing the self-employed to make contributions of up to 25% of the business' profits. The trick is that the salary portion must be contributed before Dec. 31. "It's a much better option for many sole proprietors," says Sacha Millstone, senior vice-president at the Millstone Evans Group of Raymond James & Associates.

If you've changed jobs this year you also need to do an immediate check on how much has been withheld in pretax retirement accounts. Because two employers may have withheld salary for a 401(k), it's possible you may have accidentally exceeded the annual limit. If you've made excess contributions, you need to get your employer to withdraw them by Apr. 15. Otherwise, you, in effect, end up with double taxation. The excess gets reported as income for 2006, and it will be taxed again when you start tapping the funds in retirement.

3. Expenses and Income
It's often a good idea near the end of the year to accelerate deductible expenses and defer income, but there are a few caveats. You may want to pay property tax bills in December that aren't due until January or February. That allows you to claim the deduction for property taxes in the current year. But watch out if your property taxes are held in escrow. Your mortgage company may not be as diligent about getting a check out on time as you would be. If the escrow holder pays even a few days late, you don't get the deduction until next year.

Unfortunately, this accelerated payment ploy doesn't work for interest on mortgages or loans, or for rent. The IRS won't consider it deductible for 2006.

It's also dicey to shift income into next year for work already done. Even arranging to have current salary deferred without risk and at your behest doesn't delay the tax liability, according to the IRS. Financial advisers warn that the IRS doesn't look kindly on delayed invoicing that appears out of the ordinary. Things get especially tricky for owners of small businesses that operate on an accrual basis. Under the accrual method, income is credited when services or sales occur, regardless of when the money is received.

4. Paying for Education
Congress finally got around to making permanent the federal deduction for contributions to 529 savings plans, making these tax-deferred education accounts a smarter choice for many parents. The tax change also prompted some plan providers like Fidelity and Vanguard to cut fees and offer additional investment choices, so it's worth revisiting the question of whether these plans are the most appropriate way to save for college.

If your youngster plans to start college next year, then you need to look again at your income and expenses for this year. That's because financial aid applications will focus on the full calendar year before a student matriculates. Even if there is no tax reason to defer income, keeping your income down could improve the prospects for a financial aid award. Online calculators such as FinAid (finaid.org/calculators) can show you the effect of different incomes on aid.

Going back to school for professional development in 2007? You may be able to take advantage of the lifetime learning credit, which pays a maximum of $2,000 per year. You can even collect the credit in two consecutive years for a hefty tuition bill in one year. Here's how: Prepay part of the tuition in 2006 for classes that start by Mar. 31, 2007, and you get the credit for 2006. Amounts paid in 2007 will apply to next year's taxes.

5. The AMT
Some tax moves may become irrelevant or even counterproductive if you wind up paying the alternative minimum tax. Created in the 1960s to prevent millionaires from avoiding taxes altogether, the AMT calculation disallows many popular deductions, such as state and local taxes. Your tax is whichever method produces the higher tax bill.

About 3.6 million taxpayers are expected to get hit by the AMT this year. Are you one of them? If you paid the AMT last year and your financial situation is similar this year, you're likely to get hit again. If you didn't, you may get hit if you live in a high-tax state and have several dependents. The IRS offers an "AMT Assistant" (apps.irs.gov/app/amt/index.jsp) to help you determine your exposure.

One of the biggest pitfalls with the AMT is that the tax applies to gains on incentive stock options that have been exercised even if the acquired stock hasn't been sold. If this applies to you, remember to take it into account when figuring your AMT.

Politicians in both parties have said they want to fix the AMT before it snags some 18 million taxpayers in 2008. What the pols haven't figured out is how to replace the cash it raises.

Around the Markets: Bad credit shines, but will it last?

NEW YORK: The worst are now first in the U.S. market for corporate bonds.

Securities with the lowest credit ratings gained 33 percent this year after losing 16 percent in 2005, according to an index compiled by Merrill Lynch. Bonds of Refco and Delphi, which stopped paying interest when bankruptcy proceedings began 12 months ago, appreciated more than $900 million this year, while below-investment-grade bonds on average gained 8.6 percent.

Hedge funds, fortified by $110 billion in new money from institutional investors, are snapping up the highest-yielding, highest-risk junk bonds, encouraged by an economy strong enough to reduce defaults without accelerating inflation, according to Hedge Fund Research in Chicago. So-called distressed debt funds attracted $2.7 billion during the third quarter, the biggest three- month inflow since at least 2003, the group said.

"Hedge funds are increasing institutional demand for yield," said Tom Connolly, co-head of leveraged finance and one of two Goldman Sachs executives overseeing origination and distribution of high-yield, high-risk bonds and loans. "The leveraged debt market has seen explosive growth."

Bonds of Refco, the New York futures broker that filed for protection from creditors in October 2005, have more than doubled in price this year. Refco filed for bankruptcy a week after disclosing that its former chief executive, Phillip Bennett, had concealed $430 million in debt. Bennett has pleaded not guilty to U.S. fraud charges and is awaiting trial.

Delphi, based in Troy, Michigan, the world's biggest auto parts maker, gained 58 percent in the bond market during the past six weeks. The company filed for bankruptcy in October 2005. By contrast, the best returns in the stock market this year have been telecommunications shares, which drove up the Nasdaq telecommunications index 23 percent.

For investors in the riskiest high- yield bonds, it does not get much better. The U.S. unemployment rate fell to a five-year low of 4.4 percent in October and the inflation rate dropped to 2.1 percent in the 12 months that ended Sept. 30, down from 3.8 percent the previous month.

Just 21 borrowers failed to pay on bonds worth $7 billion in the year through October, compared with 28 defaults on almost $20 billion during the same period of 2005, according to data compiled by Moody's Investors Service.

"Defaults weren't supposed to go down, and they did go down," said Martin Fridson, the publisher of the Distressed Debt Investor in New York and chief executive of the high- yield research firm FridsonVision. "You can argue that credit risk actually declined instead of increasing."

Standard & Poor's estimates that 0.4 percent of company bonds are in distress, the lowest level since 1998.

"A lot of these companies are in adequate shape for this economy," said Eric Misenheimer, who manages high-yield bonds at J.&W. Seligman in New York, noting that junk bonds "are definitely attractive."

The lowest-rated companies have had little trouble raising money. Continental Airlines last week raised $200 million by selling 8.75 percent senior unsecured notes due in 2011, its first such offering since 1998. The company has a highly speculative rating from Moody's.

"There is an enormous amount of capital in the market," said Jonathan Rosenthal, a partner at Saybrook Capital in Santa Monica, California, who represented creditors in the bankruptcy of United Airlines.

A weakening U.S. economy may stunt the rally in distressed debt. Growth in the third quarter was the slowest since 2003 as the U.S. housing market slumped. The billionaire investor Wilbur Ross Jr., said last week, "It's inevitable that we will see higher default rates" after announcing a plan to help invest $685 million in bankrupt companies for a group formed by Goldman.

The surge in prices of distressed debt bonds may be a sign that the market has reached a peak, said Marilyn Cohen, as president of Envision Capital Management in Los Angeles. "For anyone to say this isn't overdone, I think is insane," she said.