What is Microcredit and Microlending?
Saturday, November 17, 2007
Sometimes microfinancing is done for the poor, people out of work, bad credit risks, lack of collateral, or anyone not considered 'bankable'. Other times folks with excellent credit use these services to avoid the hassles of a bank.
Microfinancing originated in developing countries where it has successfully enabled impoverished people to start their own small businesses and other forms of self-employment projects to generate an income and exit their cycle of poverty. This idea has now taken hold in developed countries as the notion of an individual acting as a lender has taken hold.
Traditionally only a bank would take the risk of a structured loan for large dollar amounts. But now the internet has enabled individuals to actually become 'the bank' and lend themselves. Now you probably wouldn't lend someone $10,000 but you might lend then $100 with proper guarantees of payment, what if 100 other people also took a small risk and lent $100 as well? Suddenly you have enabled someone to get a loan and at the same time taken a small risk and earned a good return on your capital. Not a bad idea, eh? Suddenly we can be the credit cards and banks!
While many have discredited this form of lending as a waste of time, the United Nations declared 2005 the International Year of Microcredit and Prosper.com has made over 100 million dollars in loans and has half a million members.
Learn more about Prosper.com here.
Posted by ProsperBlogger 3:00 PM
Labels: microfinance
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