If you ask anyone what they think about the concept of a loan, you’d find that almost everyone would have a similar definition — a loan is simply money or financial assets given to an individual in need of funds, with a promise to pay back at a specific time. It’s pretty much basic knowledge.
If you looked further, you’d realise most persons were aware of the fact that getting a loan is not just clear and cut — no one technically lends anyone money without a guarantee, and that’s why collaterals exist. Additionally, the process of getting a loan admittedly can be complicated. This is because no one wants to lend to someone who can’t fulfil repayment obligations.
However, not everyone can afford to provide collateral or even meet all the requirements of a standard loan application. This doesn’t mean that there are no loans to cater to this class. That’s where Microlending comes into play.
What is microlending?
Microlending, also known as microcredit refers to small loans given to people with (often without collateral) to start small businesses. Take, for example, Mr A, a trader in household provisions who needs to restock his shop. As a sole proprietor, he doesn’t have collateral to get the loan he needs. His low financial status and the lack of collateral do not necessarily tick the requirements boxes. With microlending, however, Mr A can get the funds he needs to carry out his plans.
Microlending is usually centred upon the development of small businesses as opposed to the traditional motivation of making profits from interests on loans. Where conventional loans look to make a profit from interest received. Microlending offers the opportunity for businesses to grow and develop through loans, as well as eradicating poverty. Occasionally, some microlending facilities include options to coach these sole proprietors to be better in business.
What is microfinance?
Microlending is a part of a much larger picture that is Microfinance. Microfinance is an umbrella term that refers to loans, savings, insurance, transfer services and other financial products targeted at people with deficient economic status. As aforementioned, these loans and other financial products are usually given without collateral.
What is a Microfinance institution?
Every loan has a facilitator. The facilitators of microfinance are microfinance institutions or individuals that provide micro-lending services.
How can you access microlending in Nigeria?
Microlending institutions are everywhere in Nigeria. With one of the most popular being ‘microfinance banks‘. There are also peer to peer lending groups that help to facilitate microlending. Also, over the last few years, the federal government-sponsored microlending service – Trader Moni has gained traction and is becoming very popular among petty traders in Nigeria.
The loans are typically low interest, and all you need is a valid reason for taking out the loan and a suitable repayment plan. Micro-lending is the quickest way to get small scale loans.
Micro loans in Nigeria are moving rapidly to the traditional banks as well. This is because microlending has proven to be very profitable over time. The Central Bank of Nigeria also swung its full support around microlending in Nigeria to help them achieve their goal of financial inclusion.