microloans

Muhammad Yunus is considered the inventor of microcredit. Since 2006, these have been used to promote the development of people in developing countries. Many people living there do not have access to the first capital market and have very limited financial resources. In order to help these people, Yunus developed the idea of small loans with a credit volume of up to 1,000 US dollars per capita.

When such a loan is taken out, it must be invested in future-oriented investments. These include, for example, housewives who would like to set up their own sewing business. Or the cultivation of seeds in their own fields. The microcredits are burdened by high interest rates. These fluctuate between 20% and 100%, the average global interest rate is around 37%. It does not matter whether a borrower has a clean credit rating. Such strict requirements only exist in industrialised countries, where microcredit also plays an important role. The number of borrowers continues to rise each year.

Processing of microcredits in developing countries

In developing countries, it is almost exclusively women who benefit from microcredit. In this way, they are to cushion their socially disadvantaged positions in their home countries. Especially single mothers in these countries hardly have a regular income to feed their children. These children are also denied access to educational institutions for reasons of poverty. Further disadvantages arise from a medical point of view. Health insurance is often not regulated by the state. In addition, people living in rural areas suffer from a lack of medical care. The opportunity to travel to the distant city may take days.

With the new financial opportunities, these women can invest in their skills. For this they look for a bank that offers the concept of mini-loans. They are only granted a joint loan. Because the principle of the guarantor applies. Several women vouch for each other because they have no material values to secure them. The repayment of the mini-loans is made in monthly instalments, as in the industrialised countries, which usually provide the funds.

Criticism of microcredit

Although the repayment rate of microloans is over 90%, there are no clear studies on the success of this type of loan. So far, banks have failed to prove that this will reduce poverty and increase prosperity. However, there are isolated women in the media who speak positively about their personal development. Some critics assume that these women deliberately make these statements, possibly because they are under pressure.

Another problem is over-indebtedness. If a borrower fails to repay the loan in full within one year, a new microloan must be taken out. With this the remaining debt can be paid off and some fresh money can flow into self-employment. Basically, this only has the effect that some borrowers are permanently dependent on the lenders who earn from them.

Microcredit in industrialised countries

This form of credit is now an important part of the financial markets of industrialised countries. Through short-time work, low wages, debts or purchases, more and more people from the industrialised countries are making use of microcredit. This will temporarily close financial gaps. The conditions for a microloan are low compared to other loans. There must be a fixed registration address and the monthly income must not exceed a few hundred euros. In addition, people with a negative credit rating also have access to the mini-loan. Especially Online credit institutions and their subsidiaries have specialised purely in microloans.