Why interest rates of microfinance so high?

Over the years since the time when Muhammad Yunus won the Nobel Peace Prize, has become almost a household of microcredit term. The gift and even to invest in the micro-finance organizations has become a tradition that is popular at the end of the year in many philanthropic families in mind. But when people become more familiar with the sector of microfinance, the inevitable question: why so high interest rates?

In fact, rates of interest seems fairly high compared to commercial microfinance loans in the United States-course. On average, approximately 30% of the interest rate seems high micro-financing, although only in relation to credit cards. But before closing their accounts and place Micro kiva and cancel its annual contribution to the action moves us further in this topic of interest.

Some will say that political and an increased risk to foreign currency loans, is such that increases in costs to borrowers of micro-enterprises. Although these factors may play a role, there are many parties involved in the puzzle of microfinance interest rates. To make the clearer picture on what is happening, must take into account all the elements that make up these charges.

The mixture:

With the help of statistics on the market in the mixture, containing an Association of microfinance industry financial information-look at the values of the elements that make up the Micro Finance interest rates.

According to mixture has reported an average daily balance of a loan for a large part of 1,000 organizations in 2008 was about $600. Average nominal "gross portfolio return" was 30.7%. Performance of a portfolio is a good approximation of rates means applied by microfinance for their borrowers. Now, 30% seems high, but the amount of the benefits a reality? Want to you know, we need to look at their own expense.

Cost of financing:

For the same group of microfinance is the raw mix of financial statements 5.2% of the total assets and the portfolio of loans, 78.5% of total assets. We use these two figures were combined for the overall estimate of 6.7% share of 30.7% came from contributions from the interest.

What does this mean? The institutions of micro finance should always get money from somewhere. In many cases, borrow money from banks and microfinance (WFSA) investment vehicles: agencies that specialize in microfinance investment. Some microfinance have their own funds to applicants who has to offer. In all cases, you must pay the costs of call routing, loans and interest. The average cost of these funds, as we said in our previous estimates of about 6.7%.

These institutions in developing countries, with significant political risks in the game market is at first glance, 6.7% low interest rates. But there are many people and organizations that fund social investors of these institutions. Governmental organizations such as social investors, public authorities and non-profit organizations are not prepared to accept lower return on your money for a social mission that meets your investment. As a result, social investors reduce costs to borrow money for microfinance.

In addition to the economic costs of the financial institutions to create a provision of money in loans for all losses. Reserve for loans to help financial institutions to absorb future loan losses. Use a mixture of available statistics and our adjustments, we find that the cost of the allowance for loan losses is 1.4% of microfinance interest rates.

When microfinance organizations raise funds, they must be present, and therefore the law can cost money. According to the mixture, administrative costs, such as Office, transport, etc., information systems, it is approximately 6.4% of the assets in a microfinance institution: 8.1 percentage points in general our country from above.

Micro financial institutions also have costs for staff, wages, benefits, etc... The mixture was a personal expense 8.0% of total assets, which means percentile 10.1 points.

Microfinance Business Model

"Microfinance" is often defined as financial services to poor clients and low income. In practice, the term is often used more to refer to loans and other services providers who are identified as "microfinance institutions" (MI). These institutions generally tend to use new business models developed over the last 30 years to provide small loans to pay borrowers with little or no security. These methods include responsibility and group lending, a former savings requirements for the loan, the loan is becoming increasingly slowly, and an implicit guarantee of access to future loans if the loans are repaid in full and quickly.
Home MFI

MFI occurred when lack of access to credit for the poor is due to practical difficulties that the difference between the economic and operational characteristics, followed by financial institutions and financing needs of low-income households. For example, trade credit requires borrowers to have a stable source of income, which can be paid principal and interest in accordance with the agreed terms. But the incomes of many households are not stable, independent, independent of size. A large number of small loans needed to serve the poor, but lenders prefer to deal with large loans in small amounts to minimize administrative costs. Also seeking guarantees a clear title, which has many low income families. Besides banks tend to show low income introduction of a risk information is wrong track operating costs extremely high.

Microcredit is a part of microfinance, is an extension of very small loans (microloans) to those living in poverty designed to spur entrepreneurship. These people are not real, stable employment and a verifiable credit history and therefore can not meet the minimum requirements for access to traditional credit.
The business model for the economic viability

During the last decade, however, the successful experience in providing financing to farmers and small businesses shows that poor people, when access to financial services and price sensitive market, repay loans and profits used to build income and assets. This is not surprising because the only realistic option is for them to borrow in the informal market at rates much higher than market rates. Community banks, NGOs and groups of credit unions in the world at the local level have shown that these micro-credit can be profitable for borrowers and lenders who make microfinance strategies poverty reduction more effective.

Insofar as MFIs to become financially sustainable, autonomous and integral part of communities where they operate, has the potential to attract more resources and expand services to customers. Despite the success of microfinance institutions, only 2% of the world some 500 million small business owners are estimated to have access to financial services.

Grameen Bank, which is a synonym for microfinance, makes small loans to poor people without collateral. Founded in 1976, the Grameen Bank (GB) of over 1,000 branches (Branch includes 25-30 people on 240 teams and suppliers of 1200) in each province in Bangladesh, borrowing groups in 28,000 villages, 12 borrowers lakh more than 90% are women. At an annual growth rate of 20 percent in terms of its borrowers. The main feature is the rate of repayment of loans, which are as high as 98%. A most interesting aspect is the ingenious way the credit enhancement, without "guarantees". Loan system of the Grameen Bank is simple but effective. The system of the bank based on the idea that the poor have skills that are underutilized. There is a group lending strategy that uses peer pressure to ensure that borrowers advance and pay attention to managing their financial affairs in strict discipline, ensure that the final payment and borrowers to develop a good rating credit.

The business model where most of the works is to microfinance lending solidarity. Solidarity lending is a lending practice in small groups and encouraged each other along, provided that group members

Microfinance and microcredit, a way out of poverty

Have you ever heard of micro-finance? It consists of a range of financial services such as microcredit, savings and insurance for the poor. This system is commonly used in developing countries as a way to help people grow their income, money to pay their taxes and a comprehensive solution to reduce poverty.

People to whom these services are peasants, unemployed or self-employed poor. Some of these people have few assets to use to get a loan, even if they own land, often no documentation to prove ownership.

A goal of microfinance is to help poor people start businesses. This is very useful for anyone in the long run, because it would be a way to make money.

As part of microfinance is microcredit types of credit available to the poor, improve their economic situation. The focus is on developing the ability of a micro-entrepreneur and also helps to start your own business and through hard times.

Mcrocredit is not only in the poorest countries, but also in developed countries like USA, Israel, Russia and Ukraine. In the U.S., an estimated 12.6% of the population live in poverty. Although disputed that people can escape poverty from a small business, are micro-credit is used to help people in need.

There are a number of organizations offering micro-credits, among them are the non-profit organizations to make the world a better place for poor people too.

Eunsecured also working with these nonprofit organizations to provide people with a bad financial situation and obtain resources for a loan [http://www.eunsecured.com]. This is particularly useful for the poor, with a very low score. Let us help you - today!

Microcredit using mobile phone technology

We live in the age of modern technology. Technology gives us many things like as mobile, computer, TV, internet etc. It is the best to use technology. If we use our modern technology we can easily complete our daily works. In our daily life we always mobile phone .In this era Mobile phone is popular technology .Almost all people have a mobile phone .People in rural areas also use mobile phone. In the past time mobile phone was used only for calling .But now mobile phone is use in varies works .At present people are not use mobile phone only for calling they also use it as a mp3 player, TV, recorder, calculator, torchlight, clock etc .Recently mobile phone gives banking facility .This is called mobile banking .It is very easy and safe.

Nowadays Microcredit or Microfinance organizations are trying to use mobile banking in their business and also give this facility to their clients .I think this is a good step to improve themselves .By using this they me gets more clients. By using mobile banking clients may guttered more news update from microcredit organization.

The mobile banking is a new step to give much facility to microcredit holders. I think microcredit organizations should give more facility to their clients for get much popularity.