: Finance Future Orientation: Microfinance Institutions (MFIs) and the Small Business Entrepreneurs

Autores UPV
CONGRESO : Finance Future Orientation: Microfinance Institutions (MFIs) and the Small Business Entrepreneurs


Since the start of the financial crisis in 2007, the conventional banking system has restricted credit to both businesses and families, especially to less-privileged classes as such operations are too risky and expensive to be profitable. However, it has been proved that people from that social class are able to offer feasible and promising investment ideas to start profitable and successful businesses (Hollis et al.1998). They are referred to as micro-entrepreneurs, given the small size of the projects they undertake. Which is the origin of today's "microcredits"; small loans granted to socially disadvantaged classes so that they are able to develop their projects independently. Thus, micro-entrepreneurs, many of whom are unemployed, decide to start their own small businesses or micro-enterprises to improve their own and their families standard of living, a significant improvement especially in the case of women. Therefore, microcredits stand as an alternative that prevents them from relying on predatory lenders whose extremely high interest rates do not allow to start new projects. Thus, the World Bank Report (2007) defines microfinance as "Small loans that help disadvantaged people who wish to start or expand their small business but are not eligible to be granted a regular banking loan. Also called micro lending¿. These small loans are managed by a new type of financial institutions, often non-profit organisations (NGOs), called Microfinance Institutions (MFIs). This special type of financial institutions are in contact with the local community, are able to gather information about the low-cost borrower and are not only interested in obtaining profit, but also in other aspects such as development, job creation, equality, the situation of women in the labour market and ecological and environmental issues and, therefore, are closely linked to what is known as social entrepreneurship; "The concept of social entrepreneurship is, in practice, recognized as encompassing a wide range of activities; Enterprising individuals devoted to making a difference; social purpose business ventures dedicated to adding for-profit motivations to the non profit sector;"(Peredo, McLean, 2006).