Why are some microfinance loans not so 'micro'?

When asked recently by a lender why many of the loans featured on the lendwithcare.org website were rather large (often around £1,000) we explained why that might be:


1. At lendwithcare we believe that supporting small to medium enterprises (SMEs) often generates waged employment opportunities for some of the very poorest segments of the population. The latter occasionally do not even qualify for a microloan in their own right. This strategy of supporting a range of businesses we believe is more effective in tackling poverty than simply supporting one type of business.

2. We very carefully select the microfinance institutions (MFIs) we partner with overseas and believe that all of our partners, in addition to providing important financial services to their clients, have a very strong social mission and therefore we aim to raise loan capital through lendwithcare to support a true representation of the businesses they support (which include slightly larger loans). By doing this we enable our partners to free up loan capital and concentrate on serving those in more remote, and often poorer, areas.

3. Smaller loans tend to get funded very quickly on the lendwithcare website and it is often the case that a small loan will be funded within a couple of hours, leaving the larger loans to become more visible on the website, like this loan from the Philippines for example http://www.lendwithcare.org/entrepreneurs/index/4361. In reality the average lendwithcare loan is still in fact 'micro' at £567.


 
The aim of microfinance is to provide basic financial services (be it loans, savings, insurance or money transfer facilities) to those that are typically socially and/or economically excluded from the formal financial sector. And it is true that microfinance clients are overwhelmingly poor and tend to live in developing countries. However they are by no means an homogenous group of people. And as such, the microfinance services they require are wide-ranging and diverse too.


If you would like to read more about the debate on supporting microbusinesses or SME's, please read the blog Ajaz, our Microfinance Advisor, wrote about this topic http://lendwithcare.blogspot.co.uk/2011/12/microcredit-and-job-creation.html

 Nancy Thomas, Lendwithcare.org Executive