The microfinance industry, which came to prominence through its pioneer Muhammad Yunus (pictured) of Grameen Bank, is being rocked by scandals and poor economic performance. Image from Wikimedia Commons.

The microfinance industry and the microloan came out of the last several decades as a novel way to empower low-income people by extending them credit. Microlenders have been showered with praise and even Nobel prizes. However, some modern microfinance firms don’t appear to be following in the ethical or economic footsteps of the ones that came before.

Microlending firms founder

Microlending firms in Asia have experienced turbulence recently, leading some to question what the future of microcredit holds in that region. SKS Microfinance, according to the New York Times, has lost about 70 percent of its stock value on the market since its initial public offering in August of 2010. In the last quarter of 2010, the company posted a loss of more than $15 million after posting a profit of more than $14 million in the first quarter. The Indian government has been legislatively cracking down on SKS and other microcredit firms after numerous accusations of strong arm loan collections have become rampant. Last year the Economic Times reported that about 30 people in the state of Andhra Pradesh committed suicide in a 45-day period, allegedly because of debt to microcredit lenders.

Governments square off

The governments of Bangladesh and India have both pushed back against microlenders that they say crossed the line. The central bank of India passed legislation capping interest rates on microloans to 26 percent and loan amounts to 50,000 rupees or about $1,120. Furthermore, state politicians in Andhra Pradesh encouraged people to stop paying their debts to microloan lenders, and loan repayments there fell to about 10 percent, according to Forbes. In Bangladesh, Muhammad Yunus was forced from his position as head of Grameen Bank, the institution he founded, which has lent out billions in microloans to impoverished people around the world. Yunus won the Nobel Prize in Economics for his work. Lenders are accused of forcing people into a vicious cycle of debt and some are accused of using illegal or immoral methods to get borrowers to pay their debts. Yunus has been openly critical of for-profit lenders; he contends that the motive to make money rather than to help people get out of poverty is crippling microcredit as an economic tool.

The end may not be in sight

Microcredit lenders may be struggling because of economic and political conditions, but the model is beginning to take off in other countries. The Kiva organization uses donations from private individuals to raise capital for microloans all over the world. There are also American versions of microfinancing opening up. For instance, the Samuel Adams brewing company launched a joint venture with the non-profit foundation ACCION USA. Entrepreneurs can get small l0ans of a few thousand dollars to start the food-related business of their dreams, according to USA Today,. The Small Business Administration has loan programs for startups.

Sources

New York Times

Forbes

USA Today

Economic Times

Someone interested in a personal loan or small business loan can apply for one in minutes by using crowsourcing sites. Image from Wikimedia Commons.

Small businesses are able to get funding through crowdsourcing like any private individual looking to do the same. Crowdsourcing is raising funds by getting a large number of people to contribute small amounts of funds bundled into one personal loan. It’s also called peer to peer lending.

Crowdsourcing model bypasses typical middleman

Over the past few years, there has been a lot of attention paid to crowdsourcing. The idea is to use a social media-like model to raise loan capital or donations for causes. People or organizations simply put their ideas and how much they need to raise on a crowdsourcing site, and other individuals or organizations can pledge funds toward the goal. Some crowdsourcing sites don’t actually collect the funds unless the target is reached, like Kickstarter. Kickstarter was the site a Detroit man used to crowdsource, or crowdfund, the necessary capital to bring Detroit a life-size Robocop statue. (The film took place there.) The idea is simple; try to raise money from one’s peers on the internet by going around the cumbersome traditional middlemen: banks.

Entrepreneurs turn to crowdsourcing

Crowdsourcing is a way for business owners or individuals to get access to loan capital, whether it’s to fund a startup small business or if a person simply needs some personal loans. People launching a startup company can turn to crowdsourcing sites or peer to peer lending sites like Prosper and Lending Club. The model is similar; applicants state the reason for the loan and how much they need, and investors pledge funds if they are interested. The site usually gets a small percentage of the funds raised as a fee for facilitating the service, according to USA Today, and borrowers can accept or decline terms on any installment loans that are offered them. Small businesses just getting off the ground can look into microfinance sites like Kiva that allow investors to put small dollar amounts into a loan for a small business, starting at the amount of $25.

Borrowers should do their homework

If a businesses or people are interested in crowdsourcing a project, they should know exactly what they are looking for in order to apply through the most appropriate service. For instance, Kiva Microfinance is a good place for small startups looking for microloans. Lending Club is fairly discerning, as the site will reject anyone with an insufficient credit rating, and it rejects far more people than it accepts. These are great opportunities for investors, as Kiva boasts nearly a 99 percent repayment rate and Lending Club has similarly high rates of return, according to MSNBC. Lending Club usually has a rate of return between 9 percent and 10 percent of the total investment, according to Slate.

Sources

USA Today

MSNBC on the Robocop Statue and other crowdsourcing sites

Slate

See more at Kiva and Lending Club

Acción Chicago gives small businesses options. (Photo Credit: CC BY-SA/Wilhelm Joys Andersen/Flickr)

When individuals in the Chicago area need fast cash to cover for an accidental budget shortfall, they can apply for Chicago installment loans and Chicago short term loans. However, if a small business needs money to get off the ground or perform the renovations needed to expand, consumer short term loans and installment loans aren’t the best tool for the job. That’s where companies like Acción Chicago are most valuable.

Acción Chicago connects small businesses with microloans

Acción Chicago’s motto states that it is “committed to bringing affordable microfinance solutions to small business owners who need them.” By extending assistance to thousands of small business owners throughout the Chicago area, Acción Chicago has been helping plant roots that form the foundation of strong communities since 1994. Successful small businesses that display a commitment to civic pride are the kinds of businesses that Acción Chicago assists every day via a variety of microfinance options.

Helping with micro installment loans

Inevitably, some small businesses will have difficulty thriving, particularly in today’s economy. However, with microfinance companies like Acción Chicago putting forth the desire to grow strong communities via business opportunities and the jobs that follow, there are numerous paths toward small business success where once none existed. By using a formula that encourages small business owners to work toward economic self-reliance, Acción Chicago helps give small business the wings to fly toward increased revenue and job creation.

A character-based lending method

Acción Chicago does not make microlending decisions based solely upon small business revenue, collateral or credit. In order to determine what kinds of micro business installment loans and micro short term loans a small business may qualify for, a client’s level of commitment – as well as a sampling of customer and supplier references – are considered. Like a consumer short term loan or installment loan application, Acción Chicago works to ensure that the microlending application process is quick and easy for small businesses.

Acción Chicago microloan details

Microentrepreneurs searching for a cash infusion may borrow from $500 to $25,000 at a fixed annual APR as low as 12.62 percent. These 60-month installment loans require minimal documents for application. For more info, call 312-275-3000 or e-mail info@accionchicago.org.

Sources

Acción Chicago

Illinois Small Business Association Director Judith Roussel on microloans

Microlending is on the rise as banks refuse to allow small business credit and small business lending bills go nowhere in Congress. Mt. T in D.C./Flickr photo.

Microloans are emerging as an answer to the small business credit crisis. Microloans are more commonly associated with  developing countries. But microlending is on the rise in the U.S. as more small businesses are taking out microloans when the bank says no. Microlending could increase even more as a small business lending bill that would cut taxes and ease credit for small businesses stalled amid partisan feuding in the Senate.

Microlending: welcome to the third world, America

Microlending — making small loans, usually to the poor — has been one of the most effective means of financing growth in third world countries. But then the U.S. economy fell and can’t seem to get up. The New York Times reports that tight credit and the recession have increased the demand for smaller loans in the United States. Microlending is getting noticed and microloans are increasing in popularity. Kiva, which has lent more than $150 million in 53 countries, has started pilot program lending to business owners in the U.S. Grameen Bank — a microfinance group based in Bangladesh that was started by Muhammad Yunus, who won the Nobel Peace Prize for his groundbreaking work in microlending — has also widened its lending to Americans.

Small business lending bill fails

As microlenders take action to help small businesses, the U.S. Senate is sitting on its hands. Bloomberg reports that a bill addressing the lack of small business credit died July 29 when senate Democrats failed to get enough votes to consider the legislation. The bill would have provided $30 billion to banks with less than $10 billion in assets to encourage small businesses lenders. The cost of paying back those billions would decline for small business lenders as their level of lending rose. It was estimated that the small business lender package could prime $300 billion in lending. But Republicans wanted to tack extending the Bush tax cuts to the bill and said it would encourage more risky lending.

Microlending success stories

While the Senate dithers, microlending is scoring success stories. The New York Times article tells the story of a restaurant owner in Silicon Valley who saved her business with a $6,500 loan that she has three years to pay back and that carries a 6 percent interest rate. The Miami Herald reports that OUR MicroLending, a Miami-based lender, has made 764 microloans totaling $4.5 million. Its customers typically have fewer than five employees, with sales of $100,000 or less. OUR microloans range from $1,500 to $12,000 and average about $5,000. The average term is a year.