Starting Small: Why Microfinance Sees So Much Success in Developing Countries

by | Mar 20, 2018 | Business Feature

When it comes to starting a business venture, it isn’t enough that you have a good idea to start out. One of the key ingredients to launching a business venture is capital. Without the money, you won’t even be able to get things off the ground. Materials need to be purchased, and in the case of expansion, there needs to be a sizable investment. This is why many people who have incredible ideas are unable to make anything of it.

It’s a similar case in many developing countries as well. As much as it would help their economy, the lack of capital is stopping them from accomplishing anything significant. For these individuals, in particular, having an infusion of capital, even if just a small amount, could make all the difference in the world. This is exactly what makes microfinance so important, and why its performance in developing countries is nothing short of revolutionary.

How microfinance works

Sharone Perlstein, an expert in the field of microfinance, will tell you that it is essentially receiving a small but reasonable investment with the same kind of opportunity as a large loan from a bank would. It’s common knowledge that in developing countries, materials among many other things come cheaper because of the overall state of their economy. This means that a microloan can accomplish the same thing that a much larger bank-assisted loan might. The fact that the repayment rate is higher than ninety-eight percent will tell you everything you need to know about how microfinance is helping people start up their business ventures. Sharone understands this more than most, which is why he is currently in Indonesia, looking to expand microfinancing in the area.

Why starting small helps

Even in more developed urban areas, there are some business owners out there who need money to keep their business from going under – but, getting too much as a loan could be just as risky. After all, they need to worry about the inflated interest, which means they’ll have to put a good deal of work into paying back their debt. Most business owners who have just started out are more comfortable with having just enough money to expand and get the job done. This is the main reason why the repayment rate when it comes to microloans is staggeringly high compared to larger loans.

For would-be entrepreneurs in developing countries, a sizable loan will only serve to make things a little more complicated than it has to be. Microloans serve to benefit them much more, giving them just enough wiggle room to start their business venture, while providing a reasonable rate for them to eventually repay. This kind of success cannot be underestimated, as the economies of these countries are directly tied to the success of these individuals.

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