How does Microfinance work ?

Answer 1

In the US, the Small Business Administration SBA Microloan Program http://www.sba.gov/financing/sbaloan/microloans.html runs the microfinance program, with various non profits and other intermediaries working under the program in various states:

1. Loan amounts are small, averaging at $10,500. Microloan amounts may range from $1,000 to $35,000 (sometimes less, depending on the maximum amount set by the loan intermediary).

2. There are eligibility requirements, and not necessarily less strict than banks. The general requirements include some type of collateral, and the personal guarantee of the business owner. The collateral may include equipment, contracts, inventory or other property.

3. The money has to be repaid – at a given interest rate decided by the loan intermediary. According to the SBA, interest rates vary, “depending upon the intermediary lender and costs to the intermediary from the U.S. Treasury.”

For other countries, check out how Grameen Bank operates http://www.grameen-info.org/bank/WhatisMicrocredit.htm

Answer 2

You are lent small money but with big interest rate.

Answer 3

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