With the constant quest for credit, one often overlooked credit solution is micro credit.
Micro credit constitutes lenders who are set up to lend in small amounts.
Micro credit is popular in countries such as India, where there is a large segment of the population living under the poverty level.
Many of the borrowers use the proceeds of their micro credit loans to cover living expenses, while others use the money to start small businesses.
Micro credit lenders specialize in different market segments.
Some lend specifically to established businesses, while some lend to new businesses, and some even lend to people who can demonstrate that they will use the proceeds of the loan to climb the economic ladder.
For example, a farmer might use the micro loan to purchase a goat that will represent a new income source for him.
He can sell the goat milk, or slaughter the goat and sell its meat.
Micro credit has traditionally been the realm of non profit lenders.
Funded by governments and private lenders, micro lenders have issued loans to poor people.
Now the trend has changed to where private for profit lenders have entered the market.
Their loans are made as part of a profit seeking business plan, and are issued to borrowers of different economic classes.
Micro credit loans are still regulated by the government, and must be issued by a regulated and accredited financial institution.
Borrowers need to be aware of predatory lenders who will charge high interest rates for small loans.
Often the pay back amount seems small, but when translated into interest terms is very high.