There is a relatively recent phenomena of micro loans in the developing world. Mainly involving a lender which could be smaller regional banks or even a pawnshop and a borrower. It means that people who have no access to regular banking systems have access to loans. it could be for a village to irrigate their crops, it could be for small business start-ups and basically helps poorer communities stand on their own two feet. These microloans are often the only way that people can get themselves out of the poverty trap.
However, no matter how good the intentions of the lenders these loans are often covered by draconian rules and regulations. As mentioned earlier in this blog any investment's VAR is actually the full investment value. Of course we do not want to encourage defaulting, but we must always assume that there will be a percentage of businesses or ideas that fail. Often the lender will charge interest weekly or even daily making the APR very expensive indeed.
* My suggestion is firstly to create a website where potential boprrowers and lenders of microloans can discuss the project and the interest rate and terms and conditions.
* Have a simple no-nonsense plain language contract.
* Have these loans covered by a loan guarantee system (Yes, I know its against my usual opinions).
It is absolutely vital that these borrowers are treated fairly so some kind of structured mechanisms need to be put into place.
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