All around the world, and particularly in the developing nations, we know that there are gifted individuals who have excellent business ideas that they lack the means to bring to fruition. These potential wealth creators find themselves unable to access conventional business loans or sufficient business capital. Because the businesses concerned tend to be locally based traditional concerns rather than international start-up enterprises, the answer is not usually to be found in crowd-funding arrangements either. So, how are these potential entrepreneurs to kick-start their businesses and give life to their innovative ideas? In numerous cases, the solution is to be found in microfinancing.
Why microfinancing is vitally important today
The promotion of increased business activity in the developing world is an important task for the future. In this way, new markets are created and supported in locations that need them. The urgency of stimulating new business explains why microfinancing has become so vital. But what is microfinancing, and how does it work? One renowned authority on the subject, who is perfectly placed to answer these questions, is Sharone Perlstein, who is presently spearheading a dynamic campaign to promote higher levels of microfinancing in Indonesia. We asked Mr Perlstein to give us the essential facts about this most important form of fundraising.
The nature of microfinancing
Microfinancing makes small loans available, at affordable rates of interest, to budding entrepreneurs who would otherwise lack the necessary funding to create the businesses they have in mind. Access to microloans enables these entrepreneurs to purchase raw materials and cover all the other costs involved in setting up their businesses. Of course, the amounts of the microloans on offer and the conditions under which these loans are made will depend on the business environments concerned, and will vary between one country and another. So, for example, someone in a developing country, especially in a rural location, is unlikely to be offered as much as a city-based entrepreneur in a developed country would receive. As Sharone Perlstein explains, though, this apparent difference typically balances itself out because the costs of setting up a business in a developing country tend to be far lower.
Statistics compiled by the IFC (International Finance Corporation) reveal that well over 100 million people have already set up new businesses with the aid of microloans. From the lenders’ viewpoint, the good news is that microloans have extremely high repayment rates, compared to most kinds of loans available around the world. Indeed, data available on Sharone Perlstein’s website shows that 98.9% of microloans are fully repaid. These figures clearly show that microfinance is making it possible for great numbers of people to set up and nurture successful enterprises.
Microfinance and the future of business
New technological developments mean that microfinancing itself is experiencing constant refinement and evolution. In India, for example, the cash-free Aadhaar card is making it possible for people without bank accounts to be offered microloans. More generally, microlenders are expanding their services to provide even more comprehensive support for new enterprises. Some lenders are now providing business insurance or even savings schemes, for instance. All in all, microfinancing is allowing many to improve their lives and create new businesses within their localities. Anyone listening to Sharone Perlstein as he shares his extensive knowledge of this exciting subject will know that the future of microfinance is bound to be exciting and fruitful. Make sure to follow this story as it unfolds.