Femi Lanlehin (femilanlehin@gmail.com)
Abstract:
Microloans first came to the public attention in the 1980s. It was widely accepted as a means of funds creation for up-and-coming entrepreneurs and also for the expansion of existing micro-enterprise. In a nut shell, it was intent to produce additional income that can lift the micro-borrowers out of poverty. It is vivid now that many sometimes most micro-borrowers used their microloans for non-business purposes. Admit it or not, microloans merely help the poor to cope with poverty whether or not it helps them escape it. Nevertheless, it is vitally important to know what actually works and what is simply hype especially in the global anti-poverty struggle where aid budgets and public attention are both limited in measure to what stakes against millions of lives.

This piece looks at the practicable strategy for enacting the theory behind the introduction of microloans around the globe seeking to ensure this across the entire policy and issue continuum of all microfinance institutions.

Keywords: microloans, micro-enterprise, micro-borrowers, poverty
Introduction

The idea of eradicating poverty has been the singular aim of most if not all burgeoning Microfinance institutions around the world. The practice of giving below average people small loans to start small business has been perceived helpful in the maddening struggle against poverty in the third world countries.

Microfinance Institutions around the world has over the years disbursed tens of billions of dollars in unsecured loans, usually in little varying amounts but enough to kick start a small business to a people who their commercial banks have ignored. There has however been an encouraging repayment rate and collection of stories of entrepreneurs especially women lift themselves from poverty via these petty trades.
Microfinance Institutions have sprung up all over the developing world, from Asia to Europe to America to Africa; by estimate, over 100 million people worldwide have enjoyed the privilege microloan substantiates. Government aid groups and nongovernmental organizations have thus rushed to fund these credit institutions seeing the prospect of the anti-poverty program that pays for itself and even make some return.
The idea of microloan is now widely presumed and has been accepted by the lower class as an oasis in the desert of life’s struggle. But does microloan truly do much to fight poverty? Regrettably, No! Researches around the world especially in Africa have shown by most measures, microloans do not offer a way out of poverty. The problem with the lower class is not just that their income is low; it is also irregular and susceptible to disruption. Given the irregularity and susceptibility of their income, the lower class has to save and borrow constantly in order to put food on the table and meet other needs. Microloan no doubt helps a few poor entrepreneurs’ startup businesses and at the periphery, it may boost the profits of existing microenterprises, but that doesn’t translate into gains for the micro-borrowers, as measured by pointers like spending, health, income, or education. Often times, the micro-borrowers in fact splurge the loans not on business ventures but rather something else.

However, there is strong evidence that the lower class find microloans incredibly helpful in coping with their circumstances. When microloans are offered in a brilliant setting, people will absolutely come out in droves for it. Most will even come back for additional loans. And to be honest, they usually repay, the motive behind the repayment not collateral or group pressure, but rather the desire to keep the future access to a service they find somewhat helpful.

Why Microloan is not Working
Take it or leave it, Microloan is not a transformation universal remedy that will lift people out of poverty. Some entrepreneurs might be making little out of it, but the average effect is weak, sometimes nonexistent. There is no doubt in this, that microloans work in a better way providing a cheaper alternative to that of the local moneylender and his ruinous interest rate. But is it worth the hustle? So why have not seen the positive impact of microloans so far?
• Borrowers divert the capital to household expenses
• Loans are used in paying up other debts
• Loan are diverted on acquisition of more liabilities like gadgets
• Loans are used in funding ceremonies
• Poor monitoring

What can be done
Having mentioned all the problems encountered by micro-borrowers, in what ways can the micro-creditors help the potential entrepreneurs?
• Educate the borrowers on counter-productive spending habits
• Guarantors should be used as security or collateral
• Microfinance should be done right
Either we own up to it or not, we all have them. Those niggling habits that break our budgets from time to time. To some, it is shopping on a regular basis; others, acquiring up-to-the-minute electronic gadgets; and many can’t do without lottery. Whatever it is, most aspiring entrepreneurs probably already know that it is a problem. Meanwhile, if your budget is still functioning properly plus your counter-productive spending habit(s); and you can refund the loan borrowed on the scheduled date without a problem, profligacy in that category is not a problem for you. Allow no one to convince you otherwise.

Counter-productive spending habits can be controlled but it can’t be done overnight. It took everyone several months if not years to form them; it will surely take a while to break them. Fortunately, there are measures that can be taken against them.
The first and foremost idea that all microfinance institutions should get into the skull of all their clients is that the loans given to them is for business and nothing more. They should educate them that the profit made from whatever business they venture into should be threw back into it to expand their capital base. Clients must be aware that even if they were to spend out of the profit made, they should always go for the things they need and not those things they want. All clients must be taught how to track their spending against their budget. It is important for everyone to review their existing expenses against their income from time to time and adjust accordingly. Clients should be encouraged to set their financial goals. This will remind them of why they are taking the loan in the first place (to escape poverty) and why they need to make the sacrifice of cutting back on their expenses to make their goals materialize.

In addition, most times around the globe, properties are used as collateral to acquire loans from financial institutions. But in the case of micro-credits, I strongly disagree with this initiative. If those people have the properties in the first place, they wouldn’t have come to the microfinance banks for loans. We won’t even see them as been poor or below average. After a thorough evaluation of the budding entrepreneur situation, I will sturdily recommend that instead of the microfinance banks asking for properties as collateral from the micro-borrowers, they should ask for two or three guarantors to stand for them. This will be a win-win situation. There won’t be worries over viable collateral for the micro-borrowers, and they will be more traceable/ track-able for the banks. Microfinance institutions should request for guarantors that can vouch for the reliability of the micro-borrowers and that are willing to take the responsibility of repayment should their person fails. There must be a bidding document on this. The guarantors must always be a government worker of a certain level.

Furthermore, when microfinance is done right many problems will take care of themselves. Let there be an introduction of subsidies. Small one-time initial subsidies can generate service delivery to very large number of people for several years. Not only will no supplementary subsidy be needed, but microfinance providers can leverage their initial subsidies with very large multiples of commercial funds. This is already happening all over the world.

Meanwhile, it doesn’t always have to be a financial institution that gives out loans. Individuals are as capable and you don’t have to be rich to be a venture capitalist. You can provide seed capital to a sugarcane seller in Benin Republic or fund plantain chips production for a young aspiring lady entrepreneur in Tanzania for as little as ten thousand naira (N10,000.00). A school of thought put it better that “the world’s slums are populated not by helpless victims of global forces, but eager entrepreneurs lacking only a $30 loan or less to start a business and pull themselves out of poverty”. Although investing in these ventures won’t make you rich, in fact, you won’t earn a reasonable interest if any but you will help make the world a richer place by empowering budding entrepreneurs to lift themselves out of poverty. There are unfailing websites that are dedicated to this course.

whats d requiremnt nd hw can u i access d loan