The main elements of micro credits
Microfinance in general is the supply of financial services to individuals and organizations who do not have regular access to financial services provided by classical financial institutions. These are mainly the poor in third-world countries like Sierra Leone, and amongst those mainly small scale entrepreneurs or cooperative enterprises. The support and supply of especially micro-credit in third-world countries helps mobilizing local resources and guaranteeing their efficient utilization. Micro-credit achieves a comparatively high output with a comparatively low input with regard to poverty reduction.
Our goal is to implement a micro-credit institution which is financially, organizationally and socially sustainable.
Microfinance has an immediate positive impact on income and employment of poor households and improves their access to education and healthcare, gender equality and ensures the effective utilization and protection of natural resources.
To achieve financial sustainability it is necessary to adapt the concept to the local circumstances. Dealing with micro-credit volumes, expensive cost structures have to be avoided within the local organization:
Micro-credits have to be simple and cost efficient.
Credit volume, maturity and repayment schedule have to be according to the expected cash flow from the investment. Financial sustainability is achieved by relatively high interest rates and fares, which supply for the cost of risk, refinancing and management.
Due to missing conventional credit security other methods have to be employed to ensure the repayment of the loan, as e.g. group liability which utilizes the peer-pressure principal. But despite the lack of conventional credit security the default rates in micro-credit scenarios are traditionally very low.