What is micro finance?

Question

what is micro credit?

Answer 1

Microfinance is the business of making real business loans of rather small amounts to people in circumstances that would not ordinarily qualify one for such credit using traditional standards.

For an explanation of that... picture a small village in Africa. No large amount of capital, certainly very little in a form that can be invested in something new. A woman has some extra skill at making pottery. Doesn't matter the nature of it, for she can never do anything worthwhile with the extra skill. To do so, she would need a potter's wheel and supplies that might cost in the neighborhood of $400. There is no source of such capital available to her so her only assets, her extra skill and her good name with friends and neighbors as a reliable adult, are wasted for her, her family, the world. Simply because no bank stoops so low as to seek out business of her kind.

But... now someone does. The standard arrangement is for a small group of her friends and neighbors to guarantee, with her, the loan of the $400, or so — microfinance operations usually give a little counsel about a small reserve for unexpected events, and she is given the loan for a fairly short period, perhaps a year, perhaps two, though usually shorter, at, and this is the important aspect, a real, market rate. Truth be told, she usually could always have gone to a usorious lender, often called a loan shark in America, and never have worked out of debt. The benefit to her friends and neighbors who guaranteed the loan with her is not just seeing her succeed, and having better pottery available to buy, and seeing the world better off, but also that one of them can now be next in line as the "circle" is an even better guarantor with someone who is not just a success, but who has an income that could actually honor the guarantee.

For people as a whole, in a nation where microfinance takes place, this is a way out of the very long, slow process of building excess capital in forms that can be invested. It jumpstarts that process, accelerates it, and that process is what has led the rich nations of the world to being rich nations. For the world, it enriches individual lives, as mentioned above, enriches nations and peoples, but also enriches the world as human talent and dreams are no longer wasted.

Answer 2

I think the first answer is right but there's a US example: Prosper.com. It is the first US based website for person-to-person lending with similar format to eBay where lenders can bid on loan requests with bids as low as $50 and borrowers can request as little as $1000 loans. I think it's a pretty fascinating site.

Answer 3

Micro financing is financial assistance for group of persons want to engage in any business from the rural area, business based on handicraft etc..
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