Microfinancing is the process of extending smaller loans and other types of credit to those who can’t access this type of capital. Those who are currently living under the poverty line can finally get a chance to be financially independent or at least have a better lifestyle.
This is true especially for developing countries where some people survive with just $2 per day. With the help of microfinance, they can now have an option to get out of their current situation. Here are some more benefits of microfinancing.
It lets people provide for their families
There are a lot of people who work hard to get out of poverty. Sadly, despite working really hard, they can barely dig themselves out of the hole they are in. Others might be successful in doing so, but just one unfortunate event and they are back to where they started. With microfinance, people can start their own business and give them the financial support they need during economic difficulties. With the repayment scheme of microfinance, it is easier for households to budget their income to suffice for the family’s needs.
People will have access to credit
The problem in getting loans from banks and other huge firms is that it always ends up with rejected applications. Other lenders who accept those with bad credit scores have really high-interest rates that those who take out those loans are unable to repay. They end up in a much larger debt after the loan. There are banks offering loans for collateral. This is a huge risk for some people who might only have their property left that is valuable to them. Losing it could send them back to where they started, never to recover again.
Those who are overlooked by society benefit from it
Women, people with disabilities and the unemployed are the biggest recipients of microfinance. These are people who are overlooked by society. They are the ones who usually end up begging or borrowing money despite the risks just to meet their basic needs. Helping these people will also benefit society in the long run. Women who are empowered end up giving back to society through coaching, investments and business leadership roles. Taking these people out of poverty could also help spur economic activities.
Children now have the chance of having better education
The problem with people who are living in poverty is that they also don’t have the capacity to send their children to good schools. People who are uneducated or have not obtained good education have fewer opportunities in life. As a result, the cycle of poverty continues. With microfinance, there is less threat that the cycle will keep going.
There are a lot of benefits of microfinance on a global level. This is definitely the path towards a better future, especially for developing countries.