Micro Financing

Discussion in Loans started by Corzhens • Aug 12, 2015.

  1. Corzhens

    CorzhensWell-Known Member

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    Over here, we have the so called micro financing where one can borrow money with no collateral. Mostly operated by Indians who lend money in an instant, the borrower gets 100 and pays back 120 in a matter of 2 weeks. That interest is killing all the market vendors because those small people are the customers of the micro financing.
     
  2. Diane Lane

    Diane LaneWell-Known Member

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    This sounds similar to what we call PayDay Loans here in the United States. The money is loaned at a high interest rate, and is due within a few weeks, basically, when the person has his/her next payday. It used to be that a person would write a personal check, and received cash for that amount, then would return for that check and pay back the money with a substantial amount of interest. They are considered the lenders of last resort, are most often used by those with no or poor credit, and are regulated by the government. Nowadays, if you can show that you have your paycheck direct deposited into your bank, they will loan without the paper check.
     
  3. razelia

    razeliaActive Member

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    We're from the same country, right? I'm curious, which specific company does this? I'm interested in applying for a loan myself. Thanks.
     
  4. Corzhens

    CorzhensWell-Known Member

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    Oh, oh, I am advising you against taking a loan from that micro-financing investors. If you still do not know, they are called 5-6 to mean you borrow 5 and you pay 6. A simple example is you borrow 5,000 pesos and you pay 100 pesos every day for 60 days that would total 6,000 pesos. The interest is so high because the investor's risk is also high (no collateral). I would advise you to pawn something to the pawnshop instead, at least the pawnshop is legal.
     
  5. xTinx

    xTinxWell-Known Member

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    Well a debt should benefit both parties - the debtor and the creditor. We understand why Indians and Arabs who lend money to these people would impose such a large interest. They borrow in bulk. Meaning, around 20 or so people borrow money all at the same time. Now, if all of them fail to pay as agreed upon, imagine the financial loss the creditor would have to endure. The borrower-creditor relationship in this case, however, is rather informal and flexible. If you're friends with the creditor, he could lower the interest or extend the payment deadline. Vendors have to establish a good rapport and flatter him so he'd concede to their requests.
     
  6. remnant

    remnantActive Member

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    This aspect of microfinancing is deceptive due to the high interest rates. I would rather borrow from a friend or sell am item which I would replace in due course without selling it at too low a price. In our country, guarantors are required. You have to belong to a group of five individuals to get the loan after saving with the microfinance otherwise, collateral is required.
     
  7. gracer

    gracerActive Member

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    I agree. Most of the people who borrow from these micro-finances come from the low socia-economic class and I think that despite the high interest rates imposed on them, these loans have somehow benefitted them and helped them get through every day especially in times when they don't have any money to buy their basic needs such as food and medicines. The creditors charge high interest rates but they also work hard in collecting the money they released
     
  8. gracer

    gracerActive Member

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    I agree. Most of the people who borrow from these micro-finances come from the low socia-economic class and I think that despite the high interest rates imposed on them, these loans have somehow benefitted them and helped them get through every day especially in times when they don't have any money to buy their basic needs such as food and medicines. The creditors charge high interest rates but they also work hard everyday in collecting the money they released. So I think it is still a win-win situation for both debtor and debtee.
     
  9. Jamille

    JamilleActive Member

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    There are several business I know of that rely on the so-called micro-financing to fund their business during low seasons. The interest may be higher than the regular rates but some people have no access to regular loans and resort to 5-6 creditors. The interest are high but the risks are even higher for these type of creditors as they usually hold no guarantee of collection, not even post-dated checks. I've seen grocery stores in the vicinity close their business without notice and run away from their debts.
     
  10. Happyflowerlady

    HappyflowerladyWell-Known Member

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    These loans are now regulated so that a person has limits on how much they can borrow, because so many people just got so deeply in debt they could never pay it back. One family member did this a few years ago. I think they started out getting a little extra cash for Christmas, or maybe the car needed new tires. Anyway, when they went to pay it off the next month, then they were short of cash, so they re borrowed the original amount, plus the extra interest they had to pay. Each month, the same thing happened, and finally they were borrowing their whole check each month, and could not get out of the hole they had gotten into with the loan company.
    Another family member had to bail them out and then they were able to gradually repay that person back.
    Now, the laws will not allow you to borrow your whole paycheck anymore; but people still get so far in debt that it is hard for them to get back out again unless someone rescues them.
    This is definitely NOT a good way to live, or to borrow money.
     
  11. tonyb

    tonybActive Member

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    Paying 120 after two weeks for 100 that you borrowed is outrageous to be. The only good thing I see there is lack of collateral won't be any hindrance. I know of a microfinance in my location that charges 3℅ per month for interest. I think this is fair charge.
     
  12. Vinaya

    VinayaActive Member

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    Micro finance is very popular in our home country. You can get upto $150 loan without collateral. You get to pay back through adjustable easy monthly installments. The only bad thing about micro financing is the interest rate is very high. The interest rate is between 15-22 percent per year.
     
  13. ptahm22

    ptahm22Active Member

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    We call them shylocks in our country. This This business is actually illegal in our country. The owners of these companies give themselves names related to a bank to hide their main business. I wouldn't recommend them but sometimes you need instant cash and applying for a loan at a bank takes too long.
     
  14. Binu

    BinuActive Member

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    I am a part of couple of micro finance organizations. As long as you use these financing system as a saving method,you will benefit from micro-financing. However, micro finance interest rate for loan is very high, you will have to pay almost the double interest of commercial banks.