What is microcredit
Microcredit is also called microfinance. It is a type of loan or credit opportunity offered to low income earners or unemployed individuals to start a venture. Such individuals would ordinarily have no access to other financial services because they cannot meet up with their terms and conditions. Microfinance was set up to provide financial aid for such individuals.
Most microfinance institutions can provide individuals with loans ranging from $100 to $30,000. Depending on how much the person requests for. Microfinance institutions thrives in mostly Third World countries such as uganda, Nigeria, Siberia, and so on.
According to World Bank, over 500 million people have benefitted from microcredit loans all over the world.
How does it work?
Every microfinance institution have their own terms and conditions as regarding eligibility. One thing that is common between most of them is that they have interest rates. Their interests rates are usually lower than the conventional money lenders and that is why they’re convenient.
Like conventional money lenders, microfinance banks also have repayment plans. Microfinance banks hardly ever asks for collateral. They usually gather borrowers together to support each other through their contributions. If the program is successful, everyone goes home a winner. If it’s not, some will run at a loss while a selected few will gain.
Mind you, there are microfinance institutions that do not ask for interest at all. Those kind of institutions usually work closely with World Bank. To be eligible for such loans, one has to follow all their instructions to the last. Learn more!
What is microcredit strategy
The strategy of microfinance institution is to reduce poverty to the barest minimum. Microfinance institutions also aim to provide access to money for economically average citizens. As microfinance institutions begin to gain grounds their goals begins to supersedes just alleviating poverty. Some their goals are listed below.
- Provision of skills and entrepreneurial training for poor citizens. Capital is just one part of starting up a business. Providing them with a skill set is indeed a step in the right direction as they would have something to invest in. This strategy can be likened to the Chinese proverb of teaching them how to fish with the right tools.
- One particular characteristic of traditional money lenders is that they have high interest rates. Banks have lower interest rates but depending on a whole lot of terms and conditions. Well, start-ups wouldn’t need to worry about that with microcredit. Microcredit provides start-ups with extremely low interest rates that favors everyone involved. That way they don’t get discouraged of borrowing money in the first place.
- Microcredit business loans is a ray of hope for new start-ups. It encourages them financially to start their venture.
As you can see from the above, microcredit is a better way for new entrepreneurs to acquire loan. With their extremely low interest rates and other incentives, I’d advise small business owners to apply for loans from them than from loan sharks in the financial market. For more details, visit: https://www.lowfiveproductions.com/small-business-guide-to-alternative-lending/