Microcredits are classic loans, but with a very small loan amount of up to usually 1,000 euros. Micro, mini or small loans are used particularly in development aid and play a crucial role there. This type of loan is suitable for anyone who quickly needs a relatively small loan with a very short term. It is usually cheaper than an overdraft facility. In many developing and emerging countries around the world, microcredit is more than just a small loan. It can effectively help secure people’s livelihoods and give them the opportunity to start their own business.
In order to distinguish the original microcredit used in developing countries from “our” microcredit used in the industrialized countries, so-called “payday loans” are used in the Anglo-Saxon language area. It describes the small 30-day loan that can be applied for online via FinTech comparison portals or at the house bank. The actual microcredit, on the other hand, is an effective help for self-help for many people.
Who can get microcredit?
People with only a small or irregular income are reluctant to see banks as credit customers. If you want to open a business or want to start your own business as a trader, you urgently need money from the bank. However, the bank does not issue a loan because it lacks the necessary collateral.
Microcredits are created for those people who the bank refuses to give them a normal loan. The microcredit gives those who are refused by traditional banks, They are usually average people who want the chance to open a business and become self-employed with a service or a craft.
Small loans for women. Most women in Third World countries want to be independent and earn their own money to give their children a better future. In this way, poverty is combated or reduced very effectively worldwide.
Who grants small loans?
It’s not just banks like the World Bank that give small loans to people in developing countries. Private banks and companies also lend money to people who otherwise would not get a loan on fair terms. In the meantime, there are small village banks in many Third World countries that issue microcredit. See also https://moneylendingclub.com for small loans for startups.
In addition to foundations, governmental aid organizations are now appearing as donors for microcredit. These lenders alone have more than $ 70 billion in lending in circulation. Around 100 million people around the world benefit from these loans. From Germany, for example, Deutsche Bank is involved with a “Research Program” as a lender and helps people to make a living themselves.
How does microcredit work?
Microcredit basically works like any other classic loan. The borrower submits an application to his bank and explains his wish for a loan. If the reasoning is logical and plausible, the bank grants the loan and the customer pays the sum plus interest back to the bank after a previously agreed term.
However, microcredit for the third world is different from a conventional loan. Customers do not have to bring any collateral, because the borrowers of microcredits are the poorest of the poor. These people have no reserves and no collateral. According to the World Bank, most customers who apply for microcredit are so poor that they don’t earn a single dollar a day when they are employed.
The poverty and dependency of these people promise the banks and private donors a steady growth of their business. Critics call this a business with poverty. This accusation cannot be dismissed entirely from the hand. People can help themselves with microcredit, but at the same time, they are living in a certain dependency again, in this case on the lender. Nevertheless, microcredit is often the only solution to live a self-determined life and make money. However, the high repayment rate and the successes that microcredit has had so far speak more for them.
