Microlending started in 1974 with one man, Muhammed Yunus, who made a small loan to a Bangladeshi woman. That woman was living in poverty, but she used the loan to make and sell bamboo stools to feed her family. Since then, microlending has spread to several countries. Many banks and non-bank entities now offer microlending services. It has revolutionized aid efforts in third-world countries and, with extremely high repayment rates, it has helped dispell negative myths about economic sensibility in poor communities. The term 'micro' is relative in some cases.
Jun 25, 2019 Microloans are small loans that are issued by individuals rather than banks or credit unions. These loans can be issued by a single individual or aggregated across a. These loans are a lot like other Small Business Administration (SBA) loans, but they come in smaller amounts, have shorter loan terms and aren’t available through most business lenders. Similar to traditional SBA loans, SBA microloans tend to have lower interest rates and more favorable terms than the competition.
Here in the United States, the Small Business Administration (SBA) considers anything under $50,000 a microloan. That said, the SBA reports that their average microloan runs about $13,000. Most traditional lenders have no interest in microloan customers because it costs them too much to evaluate the creditworthiness of borrowers and underwrite small business loans. Those overhead costs eat into their opportunity for profit, as do the relatively low interest rates of microloans. People using microloans are not typically wealthy U.S.
Business owners. These borrowers often run their own businesses, have relatively low incomes (at or below the poverty level), and cannot qualify for a loan from a traditional lender. However, those factors don't affect the quality of their ideas or their ability to run a successful business. That's why microlending is so important to these borrowers. Microlending continues to grow overseas in developing nations, where markets are less formal and it's more difficult to access banking services—especially for those who aren't wealthy.
The second purpose is to lend to individuals in developed countries who may have and cannot obtain credit from banks, or who seek to borrow small amounts of money that are below the amounts required by a bank. And are two companies that administer peer-to-peer microlending for these purposes. A borrower may seek funding for any number of reasons, which are made explicit to potential lenders. If the lender does not trust the borrower they will elect not to fund that particular loan. In some cases, loans may not be because they cannot attract enough lenders to contribute.