One of the great characteristics of microfinance is that it does not need collateral or hard guarantees. And, this is where it can help a lot in bringing needed financial services to the poorest of the poor in the society.
Microloans are vulnerable to defaults if not handled carefully. This is where the implementations of Strict Credit Discipline is measured.
But, aside from the built-in guarantees in the designs of every micro-loan product, there are other radical ways to ensure payment. One is to secure guarantees from outside the program itself and outside the mutual agreements between and among microfinance clients.
This point of view is at the side of microfinance workers or microfinance institutes. How about those social entrepreneurs who like to have an impact in poverty eradication?
Well, you have to invest your money to some microfinance programs. You can invest your money to one or more MFIs to augment their operating capital. In credit unions, you can send your money as deposits. You can also shoulder the operational expenses.
Or, you can put your money in a bank and this money can guarantee some microloans borrowed by some clients from the bank. In the case that the bank has a partner MFI, the bank loaned out the amount to the MFI. The best thing is that the partner bank will double the amount you put as guarantee just like this:
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It is very simple. Choose an entrepreneur, guarantee his/her loan and then, get paid.
- After the partner MFI screened the entrepreneurs, their profiles are uploaded in the web. In most cases, the MFI will pay out the loan from their working capital as they would like the entrepreneur to get started on growing their business.
- You browse the profiles of the entrepreneurs on the website. Choose whom you would like to support, and guarantee a loan through PayPal.
- Based on your money you gave as guarantee, the bank issues a loan that is greater than the total guarantee amount. If the loan to the entrepreneur is already disbursed, then the bank or the microfinance institution replenishes its working capital. Otherwise the loan is disbursed to the entrepreneur.
- The entrepreneurs use the loan to grow or start their businesses. They gradually start repaying their loans according to the microfinance products they availed. Repayment statistics and progress updates are available to you through postings on the entrepreneur’s profile on the website and through RSS feeds.
- Once the entire loan is repaid to the bank, the money you gave as guarantee to the bank gets freed up. You can choose to support another entrepreneur, or withdraw the amount to your PayPal account.
For all Social Entrepreneurs out there, you can now make a difference by changing and saving lives through microfinance. You can contact your local MFIs or Credit Unions or you can go online through UNITED PROSPERITY.
For all interested Microfinance Institutes, the opportunities of multiplying your impacts are there. Grab it!
So long and I hope to hear from you. Get involved and be a Social Guarantor.