The term ” micro-credit” refers to all the financing of small amounts that the traditional banking system refuses to grant or hardly grants to entrepreneurs, which are therefore granted by specific financial institutions.
Micro-credit: a global financing system
Very prominent in the countries of the third world, the micro credit knows an increasing extent in France. There are several specialized financial institutions that offer microfinance services in the country, but the reference organization is ADIE (Association for the Right to Economic Initiative).
Who is the micro credit aimed at?
Microcredit is a loan for business projects that have particular characteristics that make them excluded from the right to conventional banking.
These are low-income natural or legal persons, social and unemployed minimum-income recipients, but who nevertheless have sufficient reimbursement capacities.
What is micro credit for businesses?
In the particular case of entrepreneurs and craftsmen, the specialized microfinance institutions give them mainly low-rate creative loans and other types of assistance, some of which are even at a rate of 0 (such as ADIE).
Micro-credits granted by these microfinance institutions to entrepreneurs and craftsmen can go up to 5,000 euros and run for durations that are less than or equal to 24 months.
The main loans granted are:
- creative credits (which is the most common type of competition for entrepreneurs);
- renewable credits;
- credits for the financing of one-off operations;
Micro-credit to companies has many advantages for the project owners who benefit from it as well as for the social fabric and the state.
- For microcredit recipients , these competitions are timely to appoint to remove the obstacles they encounter for access to financing of their small activities by banks, whether for creation or for exploitation. In addition, the introduction of micro-credits is generally accompanied by support packages in terms of training and assistance to beneficiaries, for a better use of the funds allocated to them.
- For the social fabric, micro-credit allows underprivileged sections of the population to be able to set up and carry out income-generating activities, which should reduce certain social evils such as social crises or crime. Since microfinance is based on the principle of participatory solidarity, micro-credit activities also help to strengthen social cohesion.
- For the state, micro-credit allows the emergence of activities generating jobs but also resources for the state in terms of tax and social contributions.
There are no real disadvantages that are inherent in the granting of micro credits to businesses, except that access to this service is not sufficiently regulated so as to clearly define the beneficiaries.
Thus some companies that can benefit from the help of banks come to seek financing in the microfinance market.
This induces unfair competition at the corporate level and may also lead to a gradual decline of the banking system. In the long run, the people who are the real recipients of micro credit will no longer be able to access the resources of microfinance.