THE IDEA BEHIND MICROFINANCE
There is considerable expertise and enthusiasm among the poor in developing countries; however a lack of access to credit is often the limiting factor to get started with a business. Poor people do not get loans from the mainstream banking system, because they usually have no collateral. Even if you own or have the right to ownership of property, a lack of documentation (which is not uncommon in many poor countries), results in regular financial institutions not being able to use the property as collateral.
Microfinance is small loans to poor people and low income individuals, enterprising people in developing countries, which can be applied to the development of business activities or improvement of living and housing conditions. Loans are usually monitored at the local level based on personal contact between the borrower and lender. The loans are usually short term. The losses in well-managed microfinance institutions are normally between one and two percent of the loan capital.
Kolibri Kapital believes in microfinance because:
- Individuals can use their own resources.
- People are seen as independent individuals in charge of their own future rather than as charity work.
- Microfinance improves and strengthens the economic understanding.
- Microfinance is economic development at the local level.
- Microfinance can help to rebuild the country from scratch.
In addition to microfinance, poor countries also need national projects in which the government and international aid organizations can drive development. Kolibri Kapital believes that such help is a very good way of doing aid work because: