{"id":2872,"date":"2023-02-19T16:10:57","date_gmt":"2023-02-19T16:10:57","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/learn-it-4-3-6-wrap-it-up\/"},"modified":"2023-07-12T20:18:59","modified_gmt":"2023-07-12T20:18:59","slug":"learn-it-4-3-6-wrap-it-up","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/learn-it-4-3-6-wrap-it-up\/","title":{"raw":"Module 4: Get Stronger","rendered":"Module 4: Get Stronger"},"content":{"raw":"

What Is Microlending?<\/h2>\r\nMuhammad Yunus, a professor in the Asian country of Bangladesh, is credited with formalizing microlending as a way to support small businesses. When Prof. Yunus visited the village of Jobra in 1974, he learned that to buy their supplies, basket weavers relied on predatory money lenders who charged exploitive interest rates. The professor decided to loan $27 to a group of 47 families which enabled them to produce goods and sell them for profit.[footnote]Wright, Graham, Samveeet Sahoo, and Anik Chowdhury. \u201cBangladesh \u2013 The Basket Case That Taught Microfinance to The World.\u201d Microsave.net, August 5, 2021. https:\/\/www.microsave.net\/2021\/08\/05\/bangladesh-the-basket-case-that-taught-microfinance-to-the-world\/<\/a>[\/footnote] This led to the creation of the Grameen Bank in Bangladesh. Grameen provided collateral-free loans to mainly women, who invested the money they borrowed into productive activities that improved the quality of life for their families.[footnote]Wright 2021[\/footnote]\r\n\r\nEliminating the requirement of the borrower having collateral was very significant. Collateral is some kind of valuable asset such as money or property that the borrower promises to back up their agreement to repay the loan. If the borrower is unable to repay the loan, the lender can take the collateral to compensate for the failed loan. Requiring the borrower to have collateral protects the lender but it makes getting a loan difficult for a new or struggling business that does not have anything valuable to use as collateral.\r\n\r\nCurrently in the U.S., one of the most well known microlending programs is run by the Small Business Administration. This program provides loans of up to $50,000 for starting or expanding a small business.[footnote]Small Business Administration. \u201cMicroloans.\u201d Accessed November 28, 2022. https:\/\/www.sba.gov\/funding-programs\/loans\/microloans[\/footnote] Although some collateral is often required, the eligibility requirements and terms of these microloans are more flexible than traditional bank loans. For example, the microlender might decide to provide the loan based on a business plan and anticipated sales for business just starting out while a traditional lender would want to see proof of past income from actual sales that would only be possible for an established business to provide.[footnote]Wells Fargo. \u201cMicrolending and Your Small Business.\u201d Accessed November 28, 2022. https:\/\/www.wellsfargo.com\/biz\/wells-fargo-works\/women-owned-business-resources\/managing-your-money\/what-you-should-know-about-microloans\/<\/a>[\/footnote] Some of these microloans are made by nonprofit organizations that also provide business services to increase the chances that the borrowers will be successful. These services might include mentoring, networking opportunities, and assistance with sales and marketing.[footnote]Axelton, Karen. \u201cWhat Is Microlending?\u201d Experian.com, May 18, 2021. https:\/\/www.experian.com\/blogs\/ask-experian\/what-is-microlending\/<\/a>[\/footnote]\r\n\r\n
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Does microlending alleviate poverty?<\/h3>\r\nTo what extent does microlending address the root causes of poverty, and are there other strategies that might be more effective in tackling systemic issues?\r\n[reveal-answer q=\"846891\"]Click to Show Sample Answer[\/reveal-answer]\r\n[hidden-answer a=\"846891\"]\r\n\r\nWhile microlending can provide immediate financial assistance to individuals or small businesses, it may not directly tackle the underlying systemic issues that contribute to poverty. Poverty is often rooted in complex structural factors such as income inequality, lack of access to quality education and healthcare, limited job opportunities, and inadequate social safety nets. Microlending by itself is limited in scope because only some individuals and small businesses are able to obtain microloans.\r\n\r\nMicrolending aims to empower borrowers by providing them with financial resources to start or expand their businesses. However, there it is also important to address financial literacy and business skills to ensure borrowers can succeed beyond the loan.[\/hidden-answer]\r\n\r\nTo learn more about microlending, check out these microlenders:\r\n