“Micro-credit” also known as microfinance, is a financial service for people with limited access to banks. It can be used for small business loans, emergency loans, and student loans. Micro-credit lenders provide loans to small groups of people, predominantly in developing countries.
There are two Types of Micro-credits, “Micro-borrowing” and “Micro-lending”.
- Micro-borrowing is when someone borrows money from a micro-lender. They make repayments on the loan over time, usually with interest.
- Micro-lending is when someone lends money to a borrower for free or charges interest rates that are lower than the market rates. The goal of micro-lending is not profit, but poverty reduction.
Micro-credit solutions are a trendsetter for the future of banking and finance. The concept of micro-credit solutions is that it provides small loans to the underserved population with little or no collateral. This population includes low-income individuals, women, and people living in remote regions. Micro-credit solutions provide financial stability and security to those who are excluded from traditional financial institutions.
Purpose of Micro-credit
Micro-credit is a financial system that provides people with small loans to start their businesses. Micro-loans form an important part of the economy in developing countries. These loans help people start businesses that may differ from traditional ones, and usually benefit the small communities they live in.
In developed countries, economic insecurity is normal and has become a part of the routine lives of residents. Although it can be difficult for some people to become financially secure even in developed countries, it is a temporary situation that they can cope with by finding well-paying jobs.
Whereas, in developing and underdeveloped countries, people are more concerned with earning two square meals a day in their daily lives, rather than financial security. This has adverse effects on their overall well-being. Poverty and economic insecurity are strongly connected.
Importance of Micro-credit Solutions in the Elimination of Poverty
Poverty means people have inadequate income to provide for their basic needs. It is a major factor in depriving humanity of its basic needs. It can cause one to lack educational opportunities, economic opportunities, and even financial security.
The development community also acknowledged the importance of micro-financing, as it allows the poor to improve their standard of living. Microfinancing or micro-credit solution is one of the most effective strategies for eradicating poverty in any country. It provides economic opportunities to people who might otherwise not be in the workforce.
According to policy makers’ research, micro-credit solutions empower people in the following ways:
- Encourages entrepreneurship
- Easy access to credit and provision of immediate funds
- Increase income-generating activities and reduce poverty levels
- Supports and empowers women entrepreneurs through loans to micro, small and medium enterprises
- Increases access to better health and educational facilities
- Instils “saving habits” among rural households
- Creates employment opportunities in rural areas of developing countries
Micro-credit Solutions vs. Traditional Financing Solutions
Micro-credit solutions are a viable alternative to traditional financing solutions, especially for micro and small enterprises. They offer a faster and more efficient way of getting loans and funds and provide easy access to credit. The future of finance is about digitalization. Financial institutions will be able to provide their customers with the best possible user experience by using the latest technologies offered by developed countries.
Benefits of Micro-credit Solutions
Micro-credit solutions are increasingly becoming important for micro and small businesses. They can solve various financial problems that small businesses and even women entrepreneurs face.
The Advantages of micro-credit Solutions Include:
- Offering small loans to people who need them
- Aiding in the economic development of a country
- Eliminating poverty and unemployment
- Improved opportunities for health and educational access
- Contribution to the alleviation of poverty in developing countries by providing funds in the form of capital
To help people break out of the poverty cycle, offering Micro-credit solutions is the best strategy. It offers access to credit and funds in form of capital to poor, unconnected entrepreneurs. Micro-credit is not a charity activity. But it is a private investment that seeks out good opportunities in poor communities and empowers them to improve their standard of living. It provides loans without low interest.
Industry Growth
The availability of microfinancing services can help improve the local economy and the agriculture sector. E.g., for farmers, this type of financial assistance can help them increase their yield and quality of crops. It can also help them generate income for their household. They can also educate and support other farmers in their community on how to improve the yield of their crops, thus improving the overall availability of food for the entire community. The local population can support their local economy by participating in microfinancing activities.
- Poor people can earn money and become self-employed to meet their basic needs
- Microfinance creates jobs for people
- Reduce poverty and other survival challenges
- Empower women and increase household incomes
- Microcredit improves levels of education, health, and nutrition
Avail the Benefit of Financial Services with the Microfinance Management Software
The high demand for microloans is attributed to the significant global poverty around the world. Microfinance has been around for a while and continues to skyrocket. It has become a major source of funds for entrepreneurs and SMEs. The microfinance software solution and micro-lending software solutions are tailored to adapt to changing business needs.
Panamax offers automated solutions for financial services like loans and savings at micro or small-scale levels for individuals or groups with little or no income. These Micro-credit solutions help achieve this by driving financial inclusion. It is also equipped with a graphical user interface (GUI) for a diverse set of lending methodologies and institutional models, and multiple services that can be deployed seamlessly.
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