The bank provides approximately $ 1.5 billion in loans each year. The average commitment is $ 220. All loans are financed from deposits, without external financing. The institution’s activity is based on trust and solidarity with those in need. Bank representatives make contact with them and help change their lives.
How does microcredit work?
Microcredit is provided by local non-bank institutions. This is where the poorest can borrow a small amount that will allow them to start their own business. Proponents of the idea believe that supporting the development of entrepreneurship of the local community can bring profit to the entire state.
The interest rate on microcredit includes the risk of default. The interest amounts to a dozen or so percent annually because the loan is granted to virtually everyone. The borrower is not required either a pledge or permanent employment. Interestingly, the percentage of unpaid microcredit is estimated at only 5 percent. This proves that micro-borrowers have a great deal of determination in terms of debt repayment.
In addition, even if someone cannot pay the debt, he is not left without help. Such people can apply for a new loan. Old debt is not canceled, only deferred. It can be repaid if the borrower has the opportunity. Interest will not rise above 100%. capital, because this form of commitment is to offer financial support at a price that poor people can pay.
Advantages of microcredit
Social enterprises aim to fight the problems of the modern world, not to maximize profits. Investors usually only get a refund of the amount they have invested. Thanks to favorable conditions, microcredit brings measurable benefits. Among their main advantages of microfinance are:
- accessibility for almost everyone – obtaining microcredit is possible even in the absence of any creditworthiness,
- the poor can enter the labor market – in many cases, even a small amount can start work (eg purchase of equipment),
- a chance for women’s emancipation – to finance small investments in so-called Third world countries are primarily women who decide because it is their only chance for financial independence (for this reason, among others, there is a reluctance of the authorities of some African countries to microcredit),
- economic development of the country – microfinance of economic activities significantly affects the activation of less prosperous social groups, this can improve the overall condition of the entire economy.
Microcredit and creditworthiness
Even if receiving microcredit is possible even with a bad financial situation, banks, similarly to the case of classic cash loans, impose certain conditions. First of all, the borrower must prove that he is entrepreneurial and deserving of support. Therefore, he is required to save a certain amount, which will be his own contribution to the business.
The bank also checks the integrity of the potential borrower through a local interview. In poor communities, neighbors usually know each other and can provide information that helps assess whether a person is worth helping. In addition, among others At the loan office, microcredit can only be obtained if five people guarantee its repayment.
Taking a microcredit can increase your creditworthiness. How is this possible? The repayment schedule and loan installments are set individually. Thanks to this, even people conducting small-scale business activities have a chance to pay their debts on time, which significantly increases the borrower’s credibility in the future.
This opens the way for much larger loan amounts for companies that will help grow your business. They can be found in the offer of non-bank loan companies, where verification is much simpler than in traditional banks. Creditworthiness also makes it easier to take small payday loans and installment loans.
Microcredit – where to get money for business?
Microcredit has gained popularity even in economically developed countries. There are more and more financial institutions that grant them. This form of business loans has been implemented in many countries with a completely different culture.
There are also methods in the country to support small and medium-sized enterprises.