Micro lending and microfinance are two terms that are often used interchangeably. Micro lending is making a small loan through a micro finance company to a poor individual from an emerging or third world country. Microfinance companies establish a local contact in various emerging and third world countries, such as Armenia, Azerbaijan, Bolivia, Cambodia, Ecuador, Honduras, Indonesia, Mozambique, and other countries. Individuals with business ideas that they cannot afford to start on their own, apply to the microfinance company for a loan. If the microfinance company thinks the idea is good, they put it out into their network of investors and seek microloans. In the traditional world of finance, a loan of $500 would be unthinkable. There’s not enough money involved to cover the processing of such a small loan. But in the microfinance, a loan of $500 could be just enough to get a new business started in Bolivia that improves the local economy and the life of a family that will work that business. Micro lending relies upon investors that are willing to make a small loan. The investor has the opportunity for the possibility of a good result with minimal risk. For most investors, a loss of $500 is not something they would like, but it’s not going to force them into bankruptcy either. The Microfinance company obtains a guarantee from the entrepreneur, maintains contact, collects the payments and forwards the returns to the investor. Really, the world of microfinance and micro lending offer a win-win situation for all involved. Microfinance offers smaller investors or larger investors looking to diversify, a tremendous opportunity to give back to the world. Micro lending also offers a tremendous opportunity for entrepreneurs that otherwise could not afford to start a business, a new lease on life. Once they’ve repaid their micro loan, they are creating new economies in places desperate for any new economy. Microlending is truly a good thing and will become even more popular as the word gets out about all of the fantastic benefits that microlending and microfinance are providing to all involved.
Understanding Micro lending and Microfinance
