A Filipino woman, Elizabeth Cubero borrowed $US 83 in 2004 to buy some vegetables in her village and sell them in a local market. 5 years later, Elizabeth grew her business and invested into infrastructures to grow even more. She received the prize of best entrepreneur of the month in 2009 from Amurt & Amurtel ( a financial institution ).
To do those investments she did microloans !
What's a microloan and what/who is it for ?
As you may know, to start a business you need cash, so usually the first step is going to the bank and asking for a loan to buy some equipments. To obtain this loan you will need to provide a credit history and some collaterals. Easy right ? Not for everyone !
26.6% of the world population is unbanked.
According to the World economic forum, 2 billion people are unbanked. That's a big number and those people are mainly in South Asia, Est Asia & Pacific, Eastern europe and central Asia, Latin America & Caribbean...There is a huge reservoir of entrepreneur there !!! So how can those people find loans to start their business ?
Microfinance, a way to empower people :
Microfinance can be defined as financial services for people who can't have access to it. With micro finance, people with low revenues can obtain a loan to start a business. It is a way to empower people. Microfinance gives various tools to its clients : it can be : Loans, saving services, money transfer services
The bank will do a small loan ( it can change change according to the country ) without asking for a full credit check / collateral.... It seems quite risky, doesn't it ?
Well, 97% of micro borrowers repay their credit in time with interest ( between 10% and 20% for a 2 years max period ) !! It's huge, in comparison only 35% of "US' credit card users don't carry a balance"
Limit of microfinance :
In their book, "Portfolios of the Poor: How the World’s Poor Live on $2 a Day" autors Collins, Morduch, Rutherford and Ruthven show us that the main problem on living with $2 a day is the consistency of it. One day you earn $5 and nothing the day after.
So when a low income household gets a loan they repay loans, and waive their revenues.
Today Microloan is hardly ever used to start a business. But when it is done the right way, it's a powerful way to empower people.
Microfinance recognizes that poor people are remarkable reservoirs of energy and knowledge
Kofi Annan
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Here is another post I did about my project on Micro financing and the blockchain technology.
Alan