It is not quite fair to say that microfinance’s interest rates are too high or that the repayment schemes are not good especially for poor people. The truth is that microfinance is actually the best loan option available for people who live below the poverty line in developing countries.
If poor people opt for traditional banks, they won’t even get as far as analyzing the interest rates or the payment scheme. The requirements alone are already so difficult that they won’t have the chance to get their loan application approved in the first place.
Most traditional banks only accept loan applications if they are made by people who have proven to be fiscally responsible. This also includes those who have high credit scores. For people who have not moved out of poverty their entire lives, these requirements are extremely difficult for them.
If we start looking at interest rates, traditional banks have loans that are almost impossible to repay. It puts too much pressure on people borrowing the money. Instead of being able to repay those loans, they are burdened to a point of no return. The penalties are very high. When they fail to pay, the penalties add up. In the end, they just keep paying the interest but the principal amount that was originally borrowed remains the same.
Many people have come out of poverty
Some people just look at the negative reviews about microfinance and immediately toss it aside. If we see the other side of the coin, microfinance has actually helped take people out of poverty. There were people, especially women, who felt empowered to make their own money. They not only the learnt how a business loan could help out, but also started a business with the amount they borrowed and even got support from other women in the area. Some people have also gotten an education via training from experts. The loan given to them was not the only thing they received.
A lot of people have been quick to point out that poor people became poorer because of microfinance without necessarily looking at the benefits they have received from this program. Several communities have also improved together.
In the end, it is up to the people who receive the loans and other benefits of microfinance how they use the program to their advantage. There have been those who have only used the money for personal transactions or have gotten loans to pay other existing loans. This is not a formula for success. Microfinance only works if the loans are used to start a business.
You will know the truth behind microfinance if you read the posts of Sharone Perlstein who has studied microfinancing and how it has positively shaped the world.
Article Submitted By Community Writer