Micro-lending as a Model for Efficient Commercial Small-Scale Lending and its Application in Banks
What can banks learn from microlenders?
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;
- Founding of a specialized subsidiary company;
- A change in outlook.