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Is it the same mini-credits as micro-credits?
According to the World Bank, there are some 7,000 microfinance institutions that provide these products and, in the vast majority of cases, both terms are used to refer to loans of small amounts. However, in a diachronic and rigorous way, mini-credit and microcredit refer to two different realities. Personal microloans were born first in underdeveloped countries and had a very solidary purpose, since their objective was to finance businesses, entrepreneurs and women from poor countries that were ignored by traditional banking. They were small amounts of money that were granted with low interest.
The mini-credits arise after the microcredits and although they also offer small amounts, they do not have at all the altruistic purpose of the microphones. In this case, the minicréditos offer larger amounts of money than those offered by the microloans and the price is much higher. Therefore, mini-credits are the adaptation of micro-credits to developed countries. In any case, in the first world, entities use both as synonyms, so microcredits and mini-credits refer to the same financial products, even if they are not.
Microcredit and microfinance
Microloans are part of microfinance. This term refers to financial services provided to the less favored, poor or very low income, as well as to microenterprises that are in developing countries. In addition, the main distinguishing feature is that these services are provided in a sustainable manner. Microfinance is a broader term and urgent microloans are only one part. The financial services that are included in microfinance are destined for people who, because of their socioeconomic situation, are outside traditional banks. In addition, the intention of microfinance is to help the local community by enabling people with few means to cope with new projects. Microfinance is very specifically aimed at benefiting women.
Although the majority of entities engaged in microfinance are for profit, there are non-governmental organizations and associations that provide these financial services without seeking profitability. Also, most needy some traditional entities, among which we find some Spanish banks, have entered this area as part of their policies to help the most disadvantaged and contribute to the development of the poorest groups. However, the interests of microfinance cause a constant debate because the interest rate must be low. In addition, microfinance should protect people from unethical entities that take advantaneediestand report them.
The generous history of microcredits
The economist and banker Muhammad Yunus, with the intention of lending money to poor people in Bangladesh so that they could start their business, ended up developing the concepts of microcredit and microfinance. When banks applied loans to usurious borrowers or denied loans to poor entrepreneurs because of the risk involved, Yunus believed that microcredit would be a viable model that would help the most impoverished sectors and that is why he created his own microcredit bank. in 1976. Their actions and their Grameen Bank earned them the Nobel Peace Prize. In Pakistan, Akhtar Hameed Khan was another activist who played a leading role in pioneering micro-credit and microfinance initiatives. These microcredits also benefited the community, since they generated employment, for example.
The simplicity and virtues offered by this funding caused international organizations, donors and governments to devote significant resources to ensure that the idea was also implemented in developed countries. However, when the immediate microcredits arrived in the northern hemisphere, they adapted to the reality of the first world and lost all the solidary intention with which they were created, until they became what they are today. In developed countries, microcredits went from being a “social aid” with very small amounts and very low interest to be one of the most expensive credits in the market and with amounts that go up to 1,200 euros.
Microcredits for companies that are nothing minis
A trend that we find in our country are micro-credits for entrepreneurs and micro-enterprises. In 2016, for example, the Chamber of Commerce of Spain offered a business support program for women. The financing offered was up to 25,000 euros and they were microcredits without endorsement. To request it, it was necessary to present a business plan. This type of financing is for entrepreneurs who want to launch their company or for projects with less than five years of life. There were no commissions, there was a grace period and the interest rate was a maximum of 6.25%. The Chamber of Commerce of Spain continues offering financing of this type.
In 2018 we can find banks that offer a product similar to the one explained above:
- MicroBank was born as a social bank within the Obra Social of “la Caixa”. In 2017, according to the entity’s data, they granted close to 150,000 microcredits, of which 126,000 were directed to individuals and families and 21,000 to entrepreneurs and businesses. It has four different Microcredit Business depending on the needs of the company:
- Microcredit Business- Agreement with entities: for entrepreneurs who may have difficulties accessing the traditional credit system.
- Microcredit Innovation: for entrepreneurs who want to finance the start or expansion of business projects of an innovative nature .
- Social Enterprise Loan: for entrepreneurs seeking a social impact through an economically and environmentally sustainable business activity.
- Ecomicrocrédito Negocios: for self-employed and micro-enterprises that want to invest in products or services that imply an improvement in the use of resources or a reduction in environmental impact.
- Laboral Kutxa is another entity that in collaboration with the European Investment Fund “EaSI” offer up to 25,000 euros to self-employed or micro-enterprises of less than 10 employees and with an annual turnover of fewer than two million euros. The interest rate of 4.30% TIN is quite low. This financing is aimed at generating self-employment, launching new micro-enterprises or investing in companies and social economy cooperatives.
Therefore, these microcredit do have somehow that intention to support and promote the development of communities, because they support small businesses and the self-employed to keep their business afloat.
Public entities and non-profit organizations also offer to fund for vulnerable groups in our country. We can find, for example, local programs that help women who have a business idea and need financing. In addition, they offer personalized advice, training and mentoring to promote business success. Another of the entities we talked about earlier, MicroBank, has its Family Microcredit that is aimed at “people with incomes under 18,000 euros per year, or family units with joint income less than € 36,000 per year.”
In addition, many of these organizations are offering microcredits from the North to the communities of the South to help them develop and that of their community. As an example of the many that we have, we have Elkarcredit, a Basque non-profit organization that offers financial support through micro-credits that go mainly to Central America.
The NGO Kiva, with its loans at 0% interest, is another of the organizations that offer microcredits all over the world. The person who needs financing publishes the project on its platform and the solidarity investors contribute the necessary capital. The investor can recover his money as the borrower returns it, but he will never earn it because they are microcredits without interest. Active Africa or lending are other organizations that promote a fair and sustainable financing method for developing countries.