The microloan for start-ups in germany and its origins

As the name suggests, a microloan involves comparatively small amounts of money. As a rule, it is about three-digit sums, now and then also about money in the amount of 1.000 euros or a little more.

For most entrepreneurs, a microloan is sufficient to help them get their business off the ground. Since the risk for the lender is often high, the interest rates are also correspondingly high: They are almost twice as high as conventional installment loans. In order to mitigate the repayment risk, microloans are therefore often granted in groups. In this approach, only one person receives the desired sum at a time, while the others serve as guarantors. Only when a loan has been repaid in full does the next person receive their money, with the rest of the group of people again acting as guarantors.

Microcredit in Germany
What is a microcredit?

Although even low-income people in Germany usually live far above the standard found in developing countries, the granting of microloans has the same goal. Numerous people who see no future for themselves on the primary labor market and who have a promising business idea take out such a loan. This shows how important this form of development aid is, even in large industrialized countries. Even without the high existential pressure that weighs on large sections of the population in poorer regions of the world, microfinancing in this country is aimed at the same motto: Helping people to help themselves. Only in the way of granting resp. The terms and conditions of microloans in Germany and Europe usually differ slightly from the prevailing practice in India or Bangladesh.

Instead, the principle of the 19th century cooperatives applies here. Even in the early twentieth century, the motto was "one for all and all for one". Such cooperatives have lost none of their strength and offer many advantages to small entrepreneurs in particular. Whether it is an association with other companies from the same industry or the regional connection of companies: Through mutual support, all parties involved gain security and the likelihood that the microloan will be used sensibly and sustainably is greater.

How the microcredit came into being?

The idea of microcredit originated in developing countries. Individuals or groups who want to start their own business and thus secure their existence benefit from the credit model.

Microcredit first became popular in Bangladesh, where it was intended to enable the poorer sections of the population in particular to start a business. The idea for this came from Muhammad Yanus, who used such loans to z. B. enabled slum dwellers to move up the social ladder. A typical example of the type of use of a microloan here was, for example, the installation of a telephone connection. This could be made available by the owner thereupon to other people from the neighborhood for a fee. Simple business models with a one-time investment, like this one, could and can help many people in developing countries to improve their situation through microloans, which is why Muhammad Yanus was even awarded the Nobel Peace Prize for his commitment. His concept of microloans for business founders also proved to be a financial success. After a short time, he himself founded his own official financial institution: Garmeen Bank.

The terms microloans and mini-loans are often used as synonyms for microcredit because of the way they are referred to. However, these must be clearly distinguished from one another, as the microloan is intended exclusively for entrepreneurs in the start-up phase. Normal mini and small loans, on the other hand, are loans that i. d. R. be given to private individuals and have different terms and conditions. What these forms of credit have in common with microcredit proper is, at most, a small amount or a short duration.

The benefits of microfinance

An ordinary loan is not always the best choice when it comes to getting started in credit for the self-employed and freelancers. While interest rates are generally much lower than those found in microloans, the hurdles to obtaining such a loan are much higher. Also, the long maturities not infrequently represent too high a permanent burden for a small entrepreneur to bear. Again and again people get into a debt trap, from which they cannot find their way out by their own efforts. Microloans, on the other hand, are ideal for bridging a short-term financing gap. With single enterprises often already few hundred or thousand euro decide on the continuance of the company. Moreover, microcredit as development aid is not just a purely monetary transaction. In order to be able to really help the people, the earmarked allocation is usually accompanied by comprehensive consulting services, which are intended to support the new traders in building up their business. Market economy knowledge is imparted and entrepreneurial thinking is encouraged. Microfinance is to help women in particular in strongly patriarchal social structures to achieve greater security and independence.

The downside of microfinance

The fact that microcredits cannot be a miracle cure for poverty is already evident from the basic market-economy idea that also underlies this form of financing. In addition, the terms and conditions offered by microcredit providers now differ significantly from one another. Although microfinance has helped and continues to help many people, and in some regions has improved the standard of living of whole sections of the population, it is still a capitalist model and not a purely charitable one. Whereas the idea of helping people to help themselves was central in the beginning, more and more institutions are primarily concerned with their own profit prospects.

The main problem is usually the extremely high interest rates, which break the neck of many a borrower. The founder of a company is not always able to repay his debts, and so sometimes the security strengthened by the parallel involvement of several borrowers turns into social pressure, which the insolvent quickly feels. A few sad examples from Andhra-Pradesh in southern India show how dramatically such a situation can develop. Here, several women committed suicide after falling too far behind with their loan repayments. Since the claims expired with death, they hoped to protect their families with this step.

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