The global pandemic worst hits Low-income households. Although the government and financial institutions offer a specific type of loan schemes to people bounce back, several entrepreneurs are not eligible for such offers. Here microfinance comes in.
It aims to help small businesses who are not able to access capital from mainstream financial institutions. Microfinance is a type of loan, credit or any other funding form to small business owners who need it to start from scratch.
Although there are business bounce back loans, microfinance has been launched because it aims to help those who are financially marginalised. This scheme offers capital to those who want to start their new businesses.
Microfinance in Ireland varies from other funding sources because you can access the capital even if you do not have collateral. This is why they carry high-interest rates. Microfinance has been introduced because most entrepreneurs cannot access funds from traditional means to get their businesses off the ground. Micro-savings and micro-insurance also come under microfinance.
What are the benefits of Microfinance?
Microfinance can provide funding sources to people who do not have savings and cannot access mainstream financial institutions’ capital. If you anyhow qualify for a loan, you will likely end up paying extremely high-interest rates. Here are the benefits of microfinance:
- Easier accessibility in rural areas
The concept of microfinance is generally prevalent in rural areas where people are not developed. Applying for a loan under this scheme is no longer complicated because it does not require much paperwork. Without going through formalities and documentation, you can easily borrow money.
- No collateral and guarantor
Financial institutions, including online lenders, do not lend money unless a borrower turns in the collateral or arrange a guarantor. This is because it mitigates the risk of a lender. Some people want to start a new business and do not have enough money. How can you access funds if you do not have collateral or guarantor?
Here you will need microfinance. It will offer you a small amount of money without putting in collateral. The aim of microfinancing is that a small amount of money can enable the entrepreneur to keep the ball rolling and no condition like collateral and guarantor should dissuade borrowers from borrowing money.
Microfinance aims to keep people from going into the cycle of poverty. It invites even those people, including women who do not have appropriate identification documents.
Although some other funding sources get a business off the ground, they are not suitable for those looking to start a micro business. If you are looking to start a company that does not require even €3,000, you cannot qualify for those loans.
This is why microfinance has been introduced. This scheme can allow you to borrow even a smaller amount because it has been designed with a thought that you can run your business successfully by borrowing even €100. Microfinance is creating new business opportunities by helping in every possible manner.
- Encouraging women entrepreneurship
Studies have found that female entrepreneurs are more than men in rural areas. In fact, most of the microfinance borrowers are women in rural areas. Microfinance is helping women to break the cycle of poverty and becoming self-dependent.
Since they will not need a large amount of money to start a handicraft business, for example, they cannot take advantage of other government-backed business loan schemes. Whether you need €100 or €2000, microfinance is a great way to fuel your business.
Is it worth using microfinancing?
Microfinance is a way to encourage small entrepreneurs to borrow money to fuel their businesses. It aims to reduce the unemployment rate by offering capital to those who are financially marginalised.
It depends on how you handle these loans, whether it will work in your favour or not. Many experts have found that people are using these loans to fund their necessities and as a result, getting tied up with an endless cycle of debt.
A rule of thumb says that you should use the borrowed money only to fuel your business. Otherwise, you will fail to pay off the debt and further sink into debt.