Microfinancing is a system of offering small loans to business owners who may not be able to access loans from traditional banking platforms. To qualify to get a loan from a bank, a substantial amount of documentation is needed, and the borrower needs to convince the lender that he or she can repay the loan (D’Angelo, 2022). This is often difficult for business owners whose income is low. Thus, microfinancing provides micro-insurance plans, micro-savings, and microloans for such people.
Professor Yunus presents a wonderful idea on social business and how it may help alleviate poverty and improve the economic wellbeing of communities. As he puts it, social business is a way of generating income by either reinvesting all the profits to expand the business or using the profits for social benefits to help the poor communities around the enterprise (Yunus, 2012). As much as it may have beautiful results, I would say it may not be the best way to tackle the problem. When people benefit from something without having any part in the risks involved in it, they tend to take it for granted. Thus, in the social business model, only the investors are apprehensive about the progress of the business. The beneficiaries worry less because they were not part of the initial investment.
The most common risks associated with this kind of lending include business failure, fraud, and operational difficulties. If the investment does not make any profits and the business fails, losses are recorded, and it is hard to repay the loan. Similarly, when those at the site have operational difficulties like poor cash flow, there may be delays in repaying. Fraudsters may also get loans and disappear (KIVA, 2022). This leaves no one to follow up with, especially with direct loans.
The core mission of KIVA is to make the world a place where all individuals are financially able to improve their lives. They do this by giving out loans to small business owners and investors. The borrower I chose is Damira, who needs $1,275 to expand her livestock farm. She has three grown children and does livestock farming as her primary source of income. She needs the money to purchase more livestock and breed them to increase her herd. I chose this borrower because technology in animal breeding is fast increasing. She can do cross-breeding and have better livestock breeds with proper guidance on this subject, which will earn her much more money. The business has the highest potential for a fast return on investment (KIVA, Damira, 2022). If I had money, I would lend her $3,000 so that she could exploit her potential even more. This amount will allow her to attend and get more professional training on animal breeding and utilize the economy of scale by doing large-scale production.
From microfinancing, I have learned that even small-business owners are capable of getting loans and improving their lives. When properly used, small loans can make one’s business to grow at an exponential rate. I have also learned that there is little financial balance in the world. Not all people have access to loans, and some remain poor. Thirdly, I have learned that I think beyond ordinary operations. I always want to do more than what is conventional or what people see as possible for my level. This makes me have the attribute of being a better spender and earning more profits. Lastly, I have learned that I am an analyst by nature and view situations from different perspectives before choosing the best one. For instance, one would say that success takes risks. However, I would see risking a small business as an unnecessary risk. This is why I avoided choosing a borrower from the plant-based agriculture section because of the uncertainties and many risks associated with plant cultivation, ranging from pests, diseases, and unpredictable weather patterns.
References
D’Angelo, M. (2022). Microfinance: What Is It, and Why Does It Matter? Business Daily.
KIVA. (2022). Damira.
KIVA. (2022). The risks of lending.
Yunus, M. (2012). A history of microfinance.