18 February 2014
What Is Microlending
Microlending is another way of saying short term loan or small amount lending. Typically microlending is referring to the leading services of payday loans, cash advance, or payday advance. With these terms becoming so popular and with so many people using these terms for both practical commercial purposes, as well as aggressive marketing purposes, industry veterans wanted to coin a new phrase to draw some new interest into short term loan services. Microlending refers to smaller amount loans that don't go through standard banking practices and are often associated with persons that don't have collateral, great credit, or can't get traditional banking loans.
Microlending is usually associated with private institutions or individuals that want to loan money, but is not a bank, and can charge higher interest fees, and serving fees. Although, many larger companies are starting to look into microlending as a way to reach customers and be able to help them while gaining profit. For example, Wal-mart recently began offer microlending to it's customers in Mexico. The follow excerpt is from a Business Week article.
Wal-Mart Stores, which obtained a Mexican banking license a year ago, began offering loans for purchases at 16 of its 997 Mexican outlets in November. In the U.S., the retailer markets itself as a friend to the budget-conscious. In Mexico, it charges interest rates that might set off popular and political revolts back home, although Wal-Mart describes its terms as appropriate to the Mexican market.
This may be a good strategy because they are not only making money on the loan, but when people get money in a store and they need to shop, where is the most likely place they would shop. This means that Wal-mart is no only making profit lending money out, but making profit on the goods that are bought with the money that they loan out. It's like they are getting it twice and it's completely legal.
It's not that mircolending is something new, it's just getting a fresh spin on the industry lingo. The term microlending has been around for decades, but it's getting a fresh perspective in today's economy because of all the financial woes in the world. However, microlending is nothing new and is merely another term for payday loans, cash advance, short term loans, or payday advance.