Today’s world economy is dominated by big businesses and cut-throat hierarchies. Microlenders finance those who may be left out of the typical business model, such as underprivileged or under-qualified entrepreneurs, by giving them microloans.
There are numerous nonprofit microlenders that focus on helping aspiring businessmen and women enter the marketplace. Organizations such as Kiva, Zidisha, the Business Center for New Americans and Grameen America strive to provide clients with the loans they need in an educational and sustainable way.
Here are 10 Facts About Microloans.
- Microloans are typically for no more than $50,000, hence the prefix “micro.”
- Microloans allow new business owners to take care of startup expenses. It can be extremely difficult for entrepreneurs with little disposable income to receive funding to begin their projects, which is where microloans come in. Most microloans lay the groundwork that allows businesses to survive on their own. For example, an entrepreneur who is hoping to sell dairy products may need a small loan to purchase two cows. After making this purchase, the business owner may keep breeding the cows and selling their milk, becoming more and more financially independent and eventually repaying the creditors and turning a profit. In this case and many others, the initial loan is crucial to the entrepreneur’s eventual success.
- The requisites for obtaining a microloan are more attainable than those of a traditional loan. The process of choosing who receives microloans is generally more personal, according to the microlending nonprofit Accion. The organization states that “it’s about your character as a business person, not just your credit score.” Though traditional financial factors are considered, microlenders look at the whole picture.
- Nonprofit microlending organizations largely work to educate aspiring entrepreneurs in struggling communities or developing nations. In addition to helping with loans, these organizations aid in business training and often build strong relationships with their borrowers. This can help someone with little business background find footing in the small business world more easily. These microlenders tend to charge little to no interest, making them more accessible to more applicants.
- Different microlending organizations specialize in lending to different groups of people. For instance, Zidisha provides microloans to entrepreneurs in developing countries, whereas the Business Center for New Americans works specifically with refugees, immigrants and other marginalized Americans. Grameen America fights economic inequality by loaning to women stuck in systems of poverty.
- Some microloan organizations utilize crowdfunding. Kiva, for example, posts approved loan requests online. Supporters from all over the world can view vendor profiles and project descriptions and lend as little as $25 to each project. The vendors update their lenders as their businesses grow, providing evidence that lenders can use their economic privilege to help produce sustainable outcomes.
- To boost financial outreach and follow up on repayments, organizations like Kiva sometimes use field partners to facilitate transactions. These partners act as intermediaries between lenders and borrowers. A downside to these partner loans is that the partners may charge the borrowers interest. Kiva’s direct loans, on the other hand, are always interest-free.
- Microlenders must acknowledge that their loans will not always be repaid. Kiva recognizes that borrowers occasionally fail to move their businesses in lucrative directions and that repayments are not always possible. As a result, the goal for such an organization is that borrowers repay their lenders as much as possible, even if they cannot completely refund the original amount.
- Microlending preserves a sense of pride on the part of the borrower that donating does not always maintain. The recipients of microloans are not merely given their requested funds but rather enter partnerships with their creditors. They are responsible for what they do with the funds by the repayment system. Many organizations believe this is a more sustainable way to create economic change than donations.
- Microlending may seem small, but it can have community-wide effects. Microloans can have, as the Kiva website describes, a “ripple effect,” especially in developing communities. In whatever form they take, the loans generate empowerment and opportunities that can pervade the entirety of a borrower’s community.
Microloans are vital to the success of small business ventures around the globe, enabling businesses that would be ineligible to receive traditional loans to grow and thrive in the competitive market. These 10 facts about microloans show that anyone can be a microlender. Go to any of the previously mentioned organizations’ websites to learn more and make a difference in someone’s community today.
– Sabine Poux