Microfinance

What is it? and How can I participate?


What is microfinance?

"Microfinance, also called microcredit​, is a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services. While institutions participating in the area of microfinance most often provide lending—microloans can range from as small as $100 to as large as $25,000—many banks offer additional services such as checking and savings accounts as well as micro-insurance products, and some even provide financial and business education. The goal of microfinance is to ultimately give impoverished people an opportunity to become self-sufficient"
Source: investopedia.com

Do I receive interest payments?
That depends on the supporting organisation/platform you use. Many platforms are run by Non-Profit orgnisations and are likely not to pay any interest to the lender such as the organisations listed below . If you want to combine microcredits and earning interest, I suggest doing some research on so called "p2p platforms".
However, it should be noted that the "Microfinance Intstitutions", who are the intermediaries between the plattforms and the borrower, generally charge interest for their administrative and operational costs. But many institutions also offer a range of (financial) training and technical advice to the borrowers on site or close by without additional fees.

Should I become a microcredit lender?
This is obviously a question that only you can answer and which depends on various variables like your personal financial situation etc.
And while the writer of this page is of the opinion that being a microcredit lender is a worthwile addition or alternative to "classic" donations, people interested in lending microcredit(s) should still exercise caution and diversify their lender portfolio as borrowers might not be able to (fully) repay the loans received. Note that foreign-exchange risks should also be considered.
Lenders should therefore only lend money if they are prepared to lose their investment in a worst-case szenario.

Nonetheless, microfinancing offers help to people in low income countries to work their way out of poverty through their own efforts. It should, therefore, not be treated as an investment but rather as a charity contribution.

What might also be good to know is that you are usually not the only investor for one borrower. The platforms rather collect smaller amounts from the Crownd. Once the requested amount is reached, the platform forwards the money to the borrower.

How can I give a microcredit?

Below is a small list of microcredit platforms to start off your own research.

Each platform will allow you to directly chose the project you want to support. As described above, you will not receive any interest payments should you decide to invest via these platforms.

? Have you heard of microfinance before?

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? Have you given a microcredit in the past?

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