What is a Microloan?

What Are Micro Loans?
While there are certainly different interpretations of what microloans are, in the most basic terms, they are loans of smaller dollar amounts typically used to help small businesses grow. But, the lenders who are offering these loans and how they are helping aspiring entrepreneurs make them an incredibly fascinating aspect of today’s global and increasingly digital economy. Mircroloans are increasing the number of entrepreneurs worldwide and are changing how many small businesses are funding their growth and continued success.

Defining Microloans
Microloans help enterprising individuals launch and grow small businesses. They promote stronger communities and local economies by supporting families and creating jobs.

In banking terms, a microloan is a very small loan ranging from $500 to $100, 000. Historically, banks in the United States haven’t particularly liked dealing with microloans because they have not been profitable financial products for them to market. However, alternative lenders are finding innovative ways to help small business owners while also making a profit by offering these smaller amount loans.

Microloans are one component of a larger micro financing trend that was first developed by a banker in Bangladesh named Mohammad Yunus. As the founder of the Grameen Bank, he won the 2006 Nobel Peace Prize for his efforts in supporting fledgling business owners who were too poor to qualify for traditional bank loans. By developing the concept of offering “microcredit” to these individuals, his goal was to help lift millions out of the grips of poverty through entrepreneurship. His concept has led to the development of thousands of microlending organizations worldwide.

In 1974, Yunus’ bank was the first lender to develop a microcredit program with fair interest rates and no collateral required. Since then, similar programs have sprouted throughout the developing world, and many economists believe that micro credit schemes have been a big factor in helping improve the lives of countless numbers of people in many impoverished areas around the world. Currently, it is estimated that there are more than 200 million recipients of micro loans worldwide with nearly $75 billion in outstanding debt.

Microloans in the United States
Of the 200 million recipients of microloans, only a small fraction is in the United States. Nationwide, only 400 financial institutions offer micro loans with the average micro loan amount in the United States being approximately $13, 000.

Interesting facts

• ICAfrica (International Charity for Africa) is a Canadian NGO and charitable organization delivering community level poverty alleviation support through small enterprise economic development. ICAfrica provides micro-loans, tools, small-business coaching and skills training to small but promising entrepreneurs, especially women, in sub-Saharan...
• One Hen, Inc. is a 501(c)(3) nonprofit that grew out of the 2008 children’s book on microfinance see(Microfinance): One Hen: How One Small Loan Made a Big Difference, and the educator movement it inspired. The nonprofit organization equips teachers with web-based and downloadable classroom resources and activities, and trains teachers and youth...