Here’s What You Need to Know about Microlending
Microlending has become a popular way to get quick and easy loans nowadays. However, microloans are not issued by banks and credit unions but rather by an individual or an aggregate of individuals who each contribute to the total amount of the loan. And, as its name suggests, microlending provides small loans to people who want to start a business.
Yes, it’s like small business loans, per se. But a microloan is different when it comes to the motivations behind it and the individuals involved. So, if you want to know more about microlending or microloan, read on below.
Where Microlending Originated?
The concept of microlending was introduced in the 1970s by the economist and social entrepreneur Muhammed Yunus. Then, Yunus went on to establish Grameen Bank, a microlending organization and community development bank in Bangladesh in 1983. In 2006, he was awarded the Nobel Peace Prize for advancing the idea of microfinance.
The concept of microfinance spread into various developing countries where traditional financing is not readily accessible, especially to the poor. Now you can see some individuals and organizations worldwide using this noble idea to help people in need who want to launch and develop their own business.
The Motivation That Drives Microlenders
The difference between a traditional lender and a microlender is that the former is solely interested in earning a profit through exorbitant loan fees and interest rates. A microlender, on the other hand, is all about community and economic development.
It’s in the microlender’s interest to help potential entrepreneurs build their own business by providing them accessible and affordable loans. A microlender also provides training programs to teach would-be entrepreneurs how to develop and manage a successful business.
Such training programs not only get the borrowers out of poverty but also helps ensure that they can generate enough profit to pay off their loans. Microlending is a trailblazing concept that helps spur the social and economic development of people living under the poverty line in third-world countries.
Size of the Loan
You can obtain a microloan as small as $30. But the maximum amount can go up to $30,000 or $50,000 depending on the lenders or the circumstances. Small entrepreneurs can borrow a small amount enough to pay for their supply of inventory and other necessities to jumpstart their business.
People Using Microloans
As mentioned previously, borrowers of microloans are not wealthy people or rich business owners. People using such a type of loan have relatively low incomes and are not qualified to acquire a traditional loan from banking institutions. Such borrowers are prioritized under microlending.
Borrowers only need to have a business idea and a motivation to make that idea into reality. If you have the drive to be an entrepreneur and get yourself out of poverty, you can qualify for a microloan.
How to Borrow?
Microlending has become popular due in part to the internet. Nowadays, you can find microlenders that offer microloans online. For instance, in the United States, you can visit the website of the Small Business Administration to look up the list of local microlenders by state.
Make sure to read their microloan requirements and instructions on how to apply for a microloan. Choose the microloan options and microlenders that suit your business funding needs.
How to Become a Microlender?
There’s a lot of opportunities for you to lend money to entrepreneurs. You just have to look for microlenders in your locality through the same SBA list, or you can visit sites like Kiva.org for that purpose. However, you should keep in mind that microlending doesn’t generate large amounts of profit. It’s all about helping small business owners to realize their potential.
Microlending is indeed an excellent way to help small entrepreneurs build and develop their own businesses. This type of loan is perfect for those low-income earners and business owners who are not qualified to apply for traditional loans.
Bree Diaz is a blogger who loves to write about entrepreneurship and business financing. She often visits sites like Siloans to look for resources for her write-ups. When not writing, Bree loves to go hiking and scuba diving.