Microcredit, what you have to know?
Have you ever considered asking for a microcredit? If this financial alternative went through your head, it is likely that you are starting a family business and that your current situation prevents you from meeting the requirements offered by traditional banking, right?
In case your answer is affirmative or you want to know more about this possibility of accessing micro loans, keep reading because in this text we will discover together all about them, what you should consider if you access one and what alternatives exist. Let us begin.
What is a microcredit?
A microcredit is a loan aimed primarily at people who want to self-employment. They are granted by banks specialized in microfinance, Cooperatives, or entities. Of these last two, what is to be understood is that they are entities that do not have the possibility of attracting resources from the public in the form of deposits and savings accounts (as banks do), but are specialized in granting loans and receiving financing of its partners through government funds or debt issues.
According to the National Commission for the Protection and Defense of Users of Financial Services (Condusef), these financings are based on trust and solidarity payment, thus reaching remote communities where there are simply no financial services. That is, attending to vulnerable populations that require a greater number of facilities at the time of granting.
There are two types of microcredit
That’s right, before applying for a microcredit, it is important to be clear that there are two types: individual and group. The first is very similar to any loan, so it is necessary to have a guarantee or collateral guarantee for the credit to be authorized. In the case of the second type of microcredit, a guarantee is not necessary or in between, the alternative is to form groups of five or more people.
Among the characteristics of these micro loans, the following points stand out, according to public information of the Condusef:
- The people in the group must know each other and have confidence.
- An individual loan is granted to each of the members of the group.
- Payments are made weekly or biweekly and the group meets to collect the payment.
- If one of the members does not comply, the group is responsible for the payment, that is, the guarantee is joint and several.
- In the event that any of the members defaults with a payment, all members will be reported with a negative note to the Credit Bureau.
A lot of eye before asking for a microcredit!
It may seem an alternative if your group of friends or family decides to request one of these group microcredits, but it is very important to note that in case you decide to request it in most cases the Total Annual Cost (CAT), that is the rates of interest, annuity and all commissions charged to its accredited, are located above 100%. This means that the higher the amount requested and the longer the term, the interest will increase exponentially, even up to 800%, according to information published by the newspaper Reforma.
On the other hand, according to information taken by various media outlets, the Inter-American Development Bank (IDB) points out that the costs that users pay are linked to the rates that microfinance companies have to cover for granting these types of services “operating costs, the risk of loans being bad, lack of economic stability and an environment that is not favorable to business ”are the argument that it is necessary that their operations be economically sustainable and argue that doing so guarantees permanence and expansion of the services they offer .
Therefore, it is advisable to evaluate the commitment that is acquired with a microcredit against the economic possibilities of people to ensure that they have sufficient resources to settle their debt. Otherwise, they will end up damaging your credit history, which will make it difficult to access other types of financing.
There are other alternatives
Now that you know more about these types of financial alternatives, you have more arguments to answer if you should request one or it is preferable that you put into action any of these recommendations:
Take into account that, starting a banking relationship with a formal institution will bring long-term benefits. The first step you can take is to open a savings account in which you are not charged commissions, in this way you will begin to report to bank terms and gradually generate history; Once you are subject to credit, you will be able to access some credit product such as a credit card and in the long term a formal credit, but it will not be overnight (be patient).
If the reason you requested the microcredit is that you want to start your own business, with more reason you should lean towards the formal side. Remember that, from the first step, for example: obtain financing. It is necessary that you are registered with the SAT, since many institutions request that the person be up to date, have a good administrative and accounting management.
Make sure it is not fraud
If you have already evaluated all the alternatives and the solution at this time is to request one of these microcredits, be sure to sign a contract, carefully review the conditions under which they are granted, understand each of the clauses and do not miss the rate of interest that will apply in your case. Also inquire what are the fines that apply for delays, as well as the dates and conditions of payment, no question is over when it comes to money and your financial tranquility.