Microloans: up to 25,000 euros to start your business and no collateral required
Small capital injections can help get businesses going. They give recipients, especially women with few resources, the means to improve their own and their families’ lives
Ending poverty is the number one Sustainable Development Goal (SDG) set by the UN for 2030. Ending world hunger is second. According to the United Nations Food and Agriculture Organization (FAO), 2017 saw an increase in the number of under-nourished people across the planet for the third consecutive year. The figure rose from 804 million in 2016 to more than 820 million (11% of the world population) in 2017. The organization warns that such levels were normal a decade ago.
In 1974 Bangladesh suffered a serious famine. Muhammad Yunus, a Bengali banker, decided to lend a small amount of money to people who were in debt in his community, from his own pocket. In return he asked them to focus on their work and pay back the money when they could. His experiment turned into a great success. Two years later, with this experience in mind, he decided to set up the Grameen Bank– known as the ‘bank of the poor’. The financial entity is dedicated to offering small capital injections to people who have made the decision to set up a small business to sustain their families. In practice, many of the microloansgranted across the world, especially in underdeveloped countries, go to women, who are heads of the family and manage the household income.
This was the beginning of a new type of credit: microloans. Thanks to this system, people with scant economic resources can access small loans to get their businesses started without the need for collateral, and can benefit from some of the lowest interest rates on offer.
Bike rental, crops, food businesses, pharmacies, and hairdressers
A huge variety of projects have been financed thanks to these small cash injections, and they continue to maintain links with their initial social values. NGOs and associations working with some of the poorest countries in the world have adopted the model as a tool for development, reaping collective financial and social benefits. Here are some examples from the African continent:
–Bike rentals in Tanzania: The Kazi na Sala women, with the help of the non-profit organization TATU Project, have set up a bike rental scheme, enabling users in the community to save 80 hours per month on average in their day to day activities. As well as providing a source of income for the people managing the bikes, the initiative has made community life easier by improving access to water, healthcare, and food.
– Growing and selling essential products: In the city of Kananga, in the Democratic Republic of Congo, microloans from Manos Unidas have helped establish and improve a small business set up by women to feed their families. They join forces to cultivate produce on community farms, as well as to make and sell bread, juice, and soap, among other things.
– Finance for people and specific projects: PrestAD is a platform that connects small investors and female entrepreneurs in Africa. Proposals range from 100 to 300 euros, and funds are allocated to the women who need them thanks to the selfless services of the organisation Africa Direct and its local partners. The majority of projects that have been set up involve the production and commercialization of food and clothes, but the loans have also contributed towards opening or expanding restaurants, pharmacies, and hairdressers.
The last European Microfinance Network Barometer, published in 2018, estimates that by the end of 2017 the total volume of microloans granted across the world would have increased to 114 billion dollars. This sum has gone towards the business needs of 139 million people with scant resources, mainly in Asian and South American countries.
Banco Santander focuses a large part of its microloans offering on countries such as Brazil and Mexico. The majority of these small loans are allocated to women’s enterprises, which otherwise would not have been possible.
Women’s solidarity groups in Brazil
Through Prospera, the bank boosts growth in small businesses in Brazil. 65% of them are led by female heads of the family, who “in solidarity groups made up of 3 or 4 people, receive loans of an average of 600 euros without the need for any additional guarantees”.
The initiative was recently given recognition and chosen by the United Nations as one of the most promising programmes for financial inclusion. Particular emphasis was placed on the importance of its contribution to the Sustainable Development Goals, underlining how microfinance and financial inclusion help boost economic activity and can bolster prosperity in our communities.
Collective microloans in Mexico
Banco Santander also launched TUIIO in Mexico in 2017. This is a financial inclusion programme for people on low incomes which aims to have a measurable social impact through a wide-ranging offer of inter-connected products. To request this line of credit, a minimum of 8 applicants – all of them trusted micro-entrepreneurs – between the ages of 20 and 75 need to join forces. Once the group has been formed, the bank authorizes credit within a timescale of 24-48 hours. They are then jointly responsible for paying back the loan, which is why it is important that the group is close. Every week the members must collect the amounts to be paid back, with payments being made in branches or via ATMs. The scheme, as well as being quick and having other additional benefits such as insurance and consultancy, means the costs associated with conventional lending can be reduced.
From developed countries to Europe in financial crisis
The Spanish Microloans Association (abbreviated to AEMIP in Spanish) says that “funding via microloans, something usually associated with some of the poorest countries in the world, is growing in Europe, giving thousands of people an opportunity to set up small businesses and not fall into poverty”.
Microloans began to surge in popularity at the start of the 2000s, coming from now defunct public savings banks and credit institutions such as the ICO (Official Credit Institution). Thanks to the latter, in 2003 – just one year after launching its line of microloans – more than 100 businesses had been set up, creating 110 jobs. In 2011, more than 75,000 people in Spain had been granted microloans.
Sell your idea and get up to 25,000 euros
Microloans in Spain tend to be between 10,000 and 25,000 euros, though they can sometimes be higher in value. To get a microloan in Spain you need to present an idea to the bank along with a viable and sustainable business plan, and a timescale for getting it off the ground. You can also request funds to expand or strengthen a pre-existing business. But this is not all that is required. Banks and credit institutions also need to be sure that this is the only possible route for you to secure funding.
In Spain, with the help of the organization Nantik Lum and its microloans, several projects have been set up, promoted by women:
– Las Sofías, an African hairdressers in the Madrid neighbourhood of Carabanchel opened by Magatte Kandji.
– Meteoro Jewells, a contemporary jewellery line with a focus on design and quality was set up by the young creative Marta García, to reverse the throwaway trend that is so prevalent in accessories.
– Foodtruck Greenliving, a business set up by self-employed Viviana Olguín at the Somontes Sports Club (Madrid), where she offers gourmet food and drink to customers.
– Dunia moved from the capital to Pedreguer, a Valencian town, to launch La Sana: a bakery working with organic flour and natural yeast-free sourdough to produce artisan bread.
Muhammad Yunus, the creator of microloans, decided to make the most of his training and profession as a banker and use it to change the world. And he succeeded. He put an end to the high costs and inaccessibility of funding and made it possible for people of modest means lacking financial standing to start their own businesses. In 2006 the Bengali man received the Nobel Peace Prize, for a career dedicated to offering development opportunities to the most vulnerable people.
By Belén Belmonte