Microcredit allows people who are refused a traditional bank loan to finance a purchase or launch a new professional project. But what is a microcredit really and how to subscribe to it?
Micro credit is, as its name suggests, a low amount credit. It is a small loan which is granted to people who are excluded from the banking system, in order to allow them to invest in the tools necessary to create or develop an activity which will allow them to generate income, or simply to support them during a major purchase.
Originally, it was created to fight poverty in some poor and developing countries in Asia and Africa. It was then popularized in the 1970s by the economist Muhammad Yunnus, who notably created “the bank of the poor” in Bangladesh. He relied on his conviction that by lending small sums to poor populations, their lives could change in a lasting way.
In recent years, microcredit has been developing more and more in France. There are then two kinds of micro credits:
The micro credit must remain a low amount loan, which generally varies between 300 and 3000 euros. However, it may happen that a larger sum is lent, under certain conditions.
On the other hand, the rates are quite high and of course depend on the organization from which the loan was taken out, but it is not negligible since it generally varies between 1.5% and 4%. Its repayment is then distributed in monthly installments according to the amount lent. Due to the low amounts granted, it is generally reimbursed in a short time, and it is rare for the duration to exceed 5 years.
Microcredit is therefore very popular among people with low incomes, or who do not have a stable contract allowing them to take out a traditional bank loan. Thus, an unemployed person can for example contract one in order to embark on a new activity. Indeed, many entrepreneurs take out a micro loan in order to finance a business project. But a student can also benefit from a micro credit to finance his studies or his driving licence. A micro credit can also allow a household to finance a move, buy new furniture, a new car or even a computer. It also allows many people to be able to deal with the unexpected. The most important thing is to have a project and that this loaned money is used for a specific objective. The conditions for being able to contract one are indeed very strict.
In order to take out a micro loan, you must contact a social support network. You submit your project which will then be studied by an advisor. If your adviser considers that it is well founded, it is he who will direct you to constitute the file that you will have to present to the banking establishment. Please note, however, that the establishment chosen must be approved by the FCS (Social Cohesion Fund).
Once your microcredit has been accepted, you then sign a contract stipulating the terms: the amount of the loan, its duration, the monthly payments to be repaid, etc.
In order to maximize the chances of repayment, a support network has been set up for people who have taken out microcredit.