Paper

Micro-lending as a Model for Efficient Commercial Small-Scale Lending and its Application in Banks

What can banks learn from microlenders?
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This article argues that:

  • Commercial banks hesitate to finance small and medium-sized businesses because the profit from these businesses stays below standard levels;
  • However, this retreat reduces the relevant market of the banks;
  • Industrialized countries are attempting to cater to this market segment through micro lending.

The article explains some of the successful techniques of microlending. It states that micro-lenders:

  • Take the following measures to guarantee access to a competent first counseling:
    • Actively acquiring potential clients;
    • Informing clients about the product and procedure through group counseling;
    • Providing complex advice at partner organizations with public funding.
  • Investigate credit worthiness through visiting sites, examining bills, evaluating character and creating specific databases, etc.
  • Keep the size of the first loan small;
  • Use the technique of stepping to give incentives to the borrower to repay the loan;
  • Continually adjust financing and support systems;
  • Ensure regular counseling, reviewing and training;
  • Use frequent contacts to identify a credit crisis immediately and intervene quickly.

The paper concludes by identifying the following strategies to implement microlending in the banking sector

  • Internal implementation;
  • Cooperation;
  • Founding of a specialized subsidiary company;
  • A change in outlook.