A lot of people, or even small organizations, might face complications in obtaining small loans and other basic financial services. Microfinance is a key strategy that can support people in such situations. It enables them to become financially independent by fulfilling their financial needs and allowing them to achieve their goals in times of economic difficulty. This is where the need for microfinance institutions comes into play to help those people or organizations grow and flourish.
Microfinance institutions make it easier for people and small enterprises to access loans, insurance, and investments and get the money they need to improve their businesses.
So, What exactly is Microfinance?
To put it simply, microfinance is a banking service that is provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial resources. According to Investopedia, “The goal of microfinance is to ultimately give impoverished people an opportunity to become self-sufficient.”
The main idea is to lend small amounts of money to people so they can expand their small businesses or start new ones. Once they pay back that money, it is lent to other people, so the money can be cycled to many borrowers. This provides more opportunities for new businesses and contributes to the improvement of the overall economy.
One important note on why microfinance institutions had such success is that it is easier to take loans from them than banks. This is because the criteria for the loans provided by banks are very complicated and hard to be achieved by individuals.
Microfinance generally targets borrowers who usually do not qualify for a standard bank loan due to existing financial restrictions that are preventing those people from thriving. With a microloan provided by a microfinance institution with a good repayment plan and a low interest rate, the loans are usually paid on time, if not before.
How does microfinance benefit our community?
It goes without saying that microfinance is essential for the welfare of communities around the world. There are many advantages of providing microfinance services. Below are some of the main benefits that microcredit can provide to communities to help them thrive.
Diminished Poverty
Microfinance allows people to get small amounts of money, empowering them to accomplish their goals and get out of poverty. This does not only lower poverty in the community and make it more robust but also supports people and communities to become independent and prosperous.
Safer communities
The stress of poverty sometimes causes people to seek out unhealthy ways to provide for their families. With the existence of microfinance services, the stress is more likely to decrease. This enables people to build better communities that are safe and robust.
Community development
When people have their basic needs fulfilled, they will invest their efforts in further development. This may be in the form of self-development such as advancing their education or by assisting in community development programs such as helping those in need.
New job opportunities
Microfinance enables entrepreneurs in poor communities and developing countries to pursue new endeavors in their communities. This creates more employment opportunities for others and improves the overall caliber and wellbeing of the community.
Economic Growth
By giving people a source for investment, they become business owners who will eventually create successful businesses. This, in turn, will increase trade and contribute to economic growth and improvements within the community.
People need access to easy and instant loans and the solution to this can be microfinance. Microfinance institutions provide several benefits to the community by lending money to underprivileged people. This way, they can become financially independent to cover their basic needs and invest the money to generate returns. This can boost growth, create new opportunities, reduce public stress, and facilitate further development in the community.
Having a digitalized system that provides a full cycle of lending management enables microfinance organizations to facilitate and optimize the process of loan management. To know more about the power of microfinance process automation, check out this article.
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