Microcredits are an interesting option to finance small businesses or receive help in an urgent situation.
You should take special care to request a mini-loan only in the right situation to avoid problems.
What is a microcredit or mini credit
Microcredits are personal loans of very small amounts of money. The idea of microcredits is to grant loans to people who cannot access the normal loans offered by banks (for not complying with all the requirements or for having a bad credit history).
Normally, people who usually request a microcredit are low-income and have a business idea in their head or want to improve their current business.
They were created by the Grameen bank – founded by Muhammad Yunus in Bangladesh in 1983 – with the ultimate goal of helping these people out of poverty.
In my experience, poor people are the best entrepreneurs in the world. Every day, they must innovate to survive. They remain poor because they don’t have the opportunities to turn their creativity into a sustainable income.
Today, microcredits have joined the term “mini-credits” (any small amount credit and short repayment term) and can be quickly requested online since their requirements are not very demanding and their purpose is not determined by the lender.
In Mexico, microcredits had an important presence during the financial crisis as they helped microentrepreneurs get ahead.
While microcredits have an important contribution to microfinance and the economy in general, there are specialists who argue that not everything is advantages.
Advantages and benefits of microcredits
- Boost the economy:
They help microentrepreneurs start their business.
- Low rates:
Microcredits usually have low effective interest rates because they are paid in very short periods of up to 30 days.
- Family Economy:
They form family businesses since many of the applicants are people who live in rural areas and partner with their families to carry out the business.
- Low delinquency:
According to statistics, microcredits are recognized for having a large percentage of good pay; Between 95% and 98% of applicants return the money without problems.
Disadvantages and risks of microcredits
- Over indebtedness:
If you don’t plan your personal finances well, asking for several microcredits or a microcredit to pay off other debts can end up in a worse economic situation.
- Destination for consumption:
Microcredits can have negative consequences if they are used to buy unnecessary consumer items; This is the case of people who use them to buy luxury appliances or other goods that will not provide a return.
They are a resource that can be abused by those microentrepreneurs who need money to survive if their business income is still insufficient.
It is important that you give good use to microcredit if you really want to improve your current situation. If it is for a business, it is enough to start earning the first earnings (and not having to ask for a new loan before paying the first). If it is for goods, it is something that frees up time of your day and allows you to work more (for example a clothes washer).
In conclusion, microcredits were originally designed so that people receive a boost to get out of poverty.
Currently they are also used for the purchase of consumer goods (or even to go on vacation), but as we saw you must be careful with these uses.
Robin’s goal is to boost financial inclusion so that low-income people can compare different lenders in a few minutes and easily apply for their mini-credit online.