Microfinancing has been growing in
popularity over the past decade. The Internet allows investors, lenders, and
borrowers to come together in unprecedented ways. It focuses on providing loans
of $25,000 USD and less, mainly to poor and lower middle class individuals. It
has been successfully used to stimulate local economies in both advanced and
Microfinance Is a Secure Option For
Despite the uncertain credit history of
most borrowers, microfinance has a high rate of repayment. This has lead to
funding remaining strong for institutions supporting micro-entrepreneurs.
Indeed, many groups have more funding than they have borrowers to lend to!
This market is unaffected by the general
credit crunch following the market crash. The reliability of repayment and
small amounts drive investor confidence. The size of the loans is many times
smaller than the typical home or business loan.
The Two Main Types Of Lending Groups
The two main ways micro-loans are
distributed is through institutional organizations and peer to peer funding
sources. Institutional sources include traditional banks that offer small loans
orientated towards poor business persons. It also includes non-profits that
offer loans to small farmers and craft workers in developing nations. Peer to
peer funding takes financing into the modern Internet world. People post their
proposals with loan requests and investors pledge various amounts to finance
the loan. Interest rates vary based on credit rating and loan terms.
The Most Common Small Businesses Funded By
Arts and crafts is the most common field
for micro-enterprises. A modest amount of capital is necessary to acquire tools
and raw materials, as well as cover advertising and shipping costs. However,
with a relatively small amount of money, a talented crafter can start a
lucrative business. Expansion is also easily financed with limited amounts of
The service industry is the second most
common field. Freelance writers, telecommuting assistants, remote customer
service agents, and others can benefit greatly from microfinancing. They can
use low levels of capital for advertising, creating a business website, and
home office equipment. As with arts and crafts, it also only requires a small
amount of money to expand the business.
Microfinancing has increased the
availability of capital to the poor and those with credit problems. Various
factors, including the small size of the loans, have lead to great stability
and repayment rates in the market. It has made it much easier for home workers
and small business owners to finance start up and expansion costs. Microfinance
will continue to be a growing force in financial and investment markets.