Thoughts On… Micro Finance

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It is difficult to start and sustain a business with little capital, especially if you are trying to start a small business and may be living in or under the poverty level. In many cases, a business can be started in certain areas of the world to help an individual overcome poverty and it only takes a small amount of startup cost in order for it to take place. In order to start such a business, it may be necessary for a micro finance loan to be given. What is micro finance and who can benefit from this type of resource?

On its most basic level, micro finance provides the financing that is available for very small businesses that may not be able to get that financing through other resources. In most parts of the world, women are taking advantage of this type of financing to get a business up and running that will help them to overcome poverty and to be self-sufficient. Of course, any small business would be able to benefit from this type of financing and when it is properly utilized, it can really help to benefit people on a large scale.

Micro financing differs from commercial loans in several different ways. Most commercial loans are going to require some type of collateral before you are able to get financing but with a micro loan, you will typically be given a small amount of money to get your business started with no collateral. In most cases, the amount of money that is borrowed is going to be very small, such as $50 or $100 in order to get the business up and running. The terms of the loan may differ from one financer to another but in most cases, the loan is going to be repaid within a year and often sooner. That money will then be recycled so that it can help other people to begin a small business that will
be self-sustaining.

The repayments of loans in this type of micro finance program are surprisingly high. Typically, you can expect to receive a repayment from anywhere from 95% to 98% of the individuals that receive those loans. Those rates are much better than the credit card repayment rates in the United States.

Big business can do much to promote micro finance in the community. In some cases, these types of loans are also produced from individuals that would like to help others to get a business up and running. Local banks, government grants and philanthropists may also be at the forefront of providing the money that is necessary for those microloans.

Of course, starting a small business is only one of the many reasons why micro finance can benefit individuals. It can also help to provide for the needs of households, including healthcare that may be unexpected, transportation or to help provide food when it is scarce. When people and businesses work together to provide the micro financing that is necessary in some parts of the world, everyone benefits.

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