Micro Financing/micro credit - Research Paper Example

This is where the role of micro finance comes into play. Microfinance refers to the supply of financial services to the people who are classified in the lower and middle class of income or groups that lead harmony among themselves together with small scale customers and the people who are in self-employment and do not have easy access to the banking services in order to raise credit for their personal use or for the use of their business. (Ashley, 2010) Microcredit is referred to as the supply of credit and lending to the poor and the low income customers and consumers.

Even though microcredit is just a part of the microfinance facility but it is inevitable to discuss Microcredit during the discussion of Microfinance. Micro credit seeks to extend small loans and credit to the lower income class of customers who don’t have a past credit history, a stable employment or collaterals and securities to furnish to the commercial banks and are unable to meet the prerequisites of obtaining loans from commercial banks. (Difference between microfinance and microcredit?) It is loaned to a small entrepreneur by a micro financial institution and is usually offered, with no security or guarantee, to an individual or a group or people for personal use or for business purpose.

Since the rise of micro financing and micro credit, it has become very customary for a low income consumer to raise loan and to obtain a finance from a microfinance bank in order to meet its short term needs. Where there are numerous benefits of microfinance and micro credit, there are some demerits as well. The pros and cons of microfinance and micro credit are explained in detail below: Micro credit is also beneficial to a small businessman as it also aids in raising working capital loan which enables a small business to buy further goods for his business, such as drinks for a beverage retailer or stock of other consumer products.

Micro loans