Microcredit is a device intended for people excluded from the traditional banking system because of their insufficient income or the instability of their professional situation. It is a system that facilitates access to credit for people with financial difficulties.
What does microcredit consist of?
As its name suggests, microcredit is a loan of a small amount, generally intended to meet unforeseen expenses or to carry out a personal or professional project. It allows you to acquire a minimum amount of money in order to meet specific and / or urgent needs.
The duration of the microcredit does not exceed 4-5 years in general and the repayment is made by monthly installments. However, as with most loans, it can be prepaid. The credit rate is variable depending on the different lenders.
Microcredit is divided into two categories: social or professional. Social microcredit consists of financing a personal project. Its objective is to facilitate the economic and social, but also professional, integration of the borrower. It can, for example be used to finance vocational training, repairs in housing, health costs ... It allows the borrower to acquire goods or services that will allow him to improve his situation or to cope with an accident of life. It can also aim to promote the employability of the borrower. In all cases, it is a loan that finances a personal project and in most cases, it does not exceed 3000 US dollars.
Professional microcredit is granted to create or develop a professional activity. It is a financing which can be addressed to any type of activity and to any type of status or company regime. Either way, it is intended to fund an income-generating activity. It is a loan which can sometimes amount to 25,000 US dollars.
In United States, microcredit finances 30,000 businesses a year and helps create 60,000 jobs.
How did microcredit come about in United States?
Microcredit has its roots in developing countries, where it now allows small projects to materialize, thus promoting activity and the creation of wealth. It is also practiced in countries in transition as well as in developed countries. It is a system that was created by economics professor Muhammad Yunus (Nobel Peace Prize winner in 2006) who founded the Grameen Bank in 1976, an organization intended to help the poorest people in Bangladesh. He appeared in United States following the meeting of Professor Yunus and Maria Nowak, an economist. The latter then founded Adie (Association for the right to economic initiative) in 1989. It is the first microcredit association in United States and since its creation, microcredit has been considered as a good means to fight against unemployment in United States, 70% of microcredit recipients in United States being formerly unemployed.
Since the creation of Adie, microcredit has gradually developed in United States, in particular thanks to private and public funders.
Initially, the methodology used was that of the joint surety, set up by the Grameen Bank. Unfortunately, it is a system that has not worked in United States due to a high number of beneficiaries not repaying their loans. It was at this point that the association had to create a new methodology for individual credit.
Professional microcredit first appeared in 1992, when the association decided to extend its services to people wishing to develop their own business.
Micro finance institutions:
There are 10,000 microcredit institutions in 85 countries, which serve 130 million people around the world, according to the World Bank.
In United States, the Association for the Right to Economic Initiative remains the main microcredit organization. There are more than 130 agencies across the United States and the number of credits issued per year is between 10,000 and 13,000.
There are also other microfinance institutions such as Crea-Sol. Several banks are in partnership with solidarity credit associations, in particular the Caisse d'Epargne or the Banque Postale.
Who can benefit from microcredit?
The beneficiaries of microcredit are generally people who cannot benefit from traditional bank credit but who have sufficient repayment capacities and who have a project for social integration or the development of a professional activity. Among the people applying for microcredit, we can find, for example, workers on fixed-term contracts or temporary work, job seekers receiving compensation, people with irregular income, etc.
However, it can be difficult to obtain a microcredit if one is registered with the bank of United States as prohibited banking. You must also have a minimum of income in order to be able to repay the microcredit.
How to get a microcredit quickly?
It is possible to be accompanied in the process of applying for microcredit by associations (for example Adie) whose role is to help people wishing to borrow to carry out their project. When the applicant comes into contact with one of these organizations, an analysis of his situation follows. Usually, an advisor studies the project and the applicant's repayment capacity in detail to see if they are eligible for the microcredit. He also determines his needs in terms of support to then put together a file and make the final decision to the applicant. It is also possible to apply directly to a bank or a financial institution that offers microcredits.
However, if you need a microcredit urgently, it may be easier to do the paperwork yourself, on the internet. You can use an online credit comparator and do a simulation that will allow you to have a general overview of the different offers so that you can choose the one that will be the most advantageous to you. This is a way to save time as you won't have to go to different sites to get the information you need. This allows you to assess the amount and duration of the loan, check your repayment capacities and find the microcredit that suits you best. Once the credit has been chosen, you just have to fill out an online form in order to obtain a response which is generally immediate. In some cases, you can complete your file online by scanning the documents requested by the lender (identity document, account statements, tax notice, etc.). An advisor then studies your file and once your request is validated, the money is released and paid into your account. Most of the time, the money can be available in about 15 days. However, your needs are more urgent, some sites offer microloans for which the money can be released in one day (this is often the case only for very small amounts, not exceeding 600 US dollars).
What supporting documents must be provided?
This list is not exhaustive but whatever the organization chosen, you may be asked for the following documents:
-An identity document (CNI, passport, residence permit, etc.)
- Proof of resources (last 3 payslips, last CAF payment notice, last tax notice, amount of pensions, pensions for the last quarter, etc.)
- Proof of charges (proof of fixed charges such as rent, heating, proof of debts or bills to be paid, alimony, loan contracts in progress, other regular charges, etc.)
-Three last bank statements
What are the advantages and disadvantages of microcredit?
One of the advantages of microcredit is the possibility of applying for it even if you have no income or are unemployed. It is also an effective solution for people with minimal salaries or people with financial difficulties and for whom traditional credit is not accessible. Microcredit can help to get out of a difficult situation, to integrate socially and economically or even to start a business. It is a good way to fight against banking exclusion and it allows people in difficult financial situations to get out of a vicious circle in which a lack of money prevents them from finding a job or starting a business. .
However, interest rates can sometimes be very high given the risk involved in lending small amounts. Lenders thus compensate for the possibility of non-repayment. There are also many unscrupulous financial organizations that have set up microcredit at really abusive rates, favoring financial profitability instead of economic development. The microcredit system is thus regularly accused of promoting the over-indebtedness of people who are already in a precarious situation when the very basis of this credit is to help them.
The small amount of the microcredit can also be a disadvantage for people who would need a higher sum to get out of a difficult situation.