When we talk about loans, most of us understand it as borrowing money with a promise to pay it back later. It’s a basic concept that’s familiar to almost everyone. But getting a loan isn’t always straightforward. Lenders want assurance that borrowers can repay, which is where collaterals come in.
However, not everyone can meet these requirements. This is where microlending steps in to help those who may not have collateral or meet all the standard application criteria.
What is Microlending?
Microlending, also known as microcredit, is about giving small loans to people, often without the need for collateral, to kickstart small businesses. For instance, imagine Mr. A, a small trader in household items who needs funds to restock his shop. As a sole proprietor, he lacks collateral for a traditional loan. Microlending bridges this gap, enabling Mr. A to get the funds he needs.
Unlike traditional loans that aim to make profits from interest, microlending focuses on nurturing businesses and fighting poverty. Some microlending programs even offer coaching to help these small business owners succeed.
Microlending is part of a larger concept called Microfinance. This term covers loans, savings, insurance, and other financial services designed for people with limited financial resources. These services are typically provided without the need for collateral.
Who Facilitates Microfinance?
The providers of microfinance services are known as microfinance institutions. These institutions or individuals are responsible for offering micro-lending services.
How to Access Microlending in Nigeria
Microlending opportunities are widespread in Nigeria. One popular option is through microfinance banks. Peer-to-peer lending groups also play a role in facilitating microlending. In recent years, the Nigerian government has introduced ‘Trader Moni,’ a micro-lending service aimed at helping small traders. These loans often come with low interest rates, and all you need is a valid reason for the loan and a suitable repayment plan. It’s the quickest way to secure small-scale loans.
Microlending is gaining momentum in Nigeria, rapidly gaining ground on traditional banks. Its profitability over time has attracted attention, and the Central Bank of Nigeria is throwing its full support behind microlending to promote financial inclusion. With microlending and microfinance, small businesses have a chance to thrive, and individuals have the opportunity to improve their economic status. It’s a step towards a more inclusive and prosperous financial landscape for all Nigerians.