Why the need for micro credit in the world?

Most people in the world working in family businesses or on their own. Micro enterprise, like any business, you need external resources to finance, either to survive or grow.

The reasons why conventional banks do not penetrate this market of high interest rates are several:

    The costs are very high and very small volumes.
    The infrastructure is very complicated and costly.
    The stakes are very high so there are no appropriate interest rate to balance the type of risk.

As people in low economic levels can not be normal access to credit from a bank because it has no assurance that such persons or micro go to other solutions, the most common is what is called a loan shark ("loan shark" lenders opportunistic). This means that they go to lenders who can charge usurious interests considered by the international trade laws (from 5% to 30% per week per month). The annual interest rates to which it provides these micro-or low-income people are ranges of 1.100% to 2200%. This works because they are very short-term loans (usually days). Additionally it is often the only source of funding that are available. Then the production process which involves these individuals or micro enterprises need to be highly profitable to survive. This profitability is largely due to the lender or the person providing the funding source.

A clear example is the sale of shirts on the street. Many of the people who are selling these shirts on "consignment" or borrowed to buy the shirts (which would be called working capital). To buy these shirts they borrow at rates of 10% per day so they need to sell all your goods the same day so they can do business. The worst is that they can achieve economies of scale for that very reason. So never go out of this vicious circle of providing such high interest rates. That's why for low-income people money every day is much more important than money. For this problem arises micro credit financing in the world. Born as an alternative to these loan-sharks who charge high interest rates that only create wealth for lenders. Micro credit is a financing option for low-income people who need to generate capital for equity or assets.

 

Additionally there are other private efforts to help finance low-income people. An example of this type of programs running in parallel to microcredit is Cemex's Patrimony Hoy.