I did some work cutting concrete for a man this summer who ran a microloan company in DC. If done in a charitable fashion where profit is not the main motivating factor, it can be extremely useful for developing countries. I remember the Economist ran a series of articles back when I could afford that magazine.
As much as possible, avoid the micro lenders because they will milk you from the usurious interest rate that you are being charged. Most of the micro lenders here have a house of their own and nice cars although they use the motorcycles and do not wear fancy clothes in doing their business. There are countless of micro lenders who were held up by criminals, divesting them of their collection for the day which amount to several thousands. Small people like vendors would always say that they cannot borrow money from the bank so they resort to micro lender.
As with ANY type of loan, it's the ibterst rate that is the key figure you have to look at. Call the loans want you want, it doesn't matter, payday loan, peer to peer loan or micro loan, if the interest tmrate is to high, then avoid like the plague. The terms and conditions are there to tempt you in, and offering you a decent sum and tiny payments sounds ideal, apart from when you realise the interest is 2000%
In so many ways they are basically a scourge on society. They manage to kick people when they are already down and for the more financially illiterate they can be incredibly dangerous. But in one way or another they have been around for centuries. Pawn brokers played on the same principles but in a more subtle way. The sooner they get more strictly governed, the better.
Sadly, yes, people particularly the poor and needy fall prey to those usurers on motorbike. The money in their hands serves as a lure such that even if those poor people don't badly need money, they would borrow just for the sake of borrowing, not thinking if they have the capacity to pay or if they are at a disadvantage with the usurious interest rate. Pawnshops are much better because they charge 5% interest per month against those micro lender with their 20% interest in 2 months including the daily installment.
And that's why these types of loan are so popular. They are aimed at people who they know are desperate and will do anything to get money, no matter what the interest rate is.
Yeah, but desperate people often make unwise choices, so they just postpone the money. It's a business even so, interest rates are great.
Usually, it's easier to get money from these lenders. This is why most of the people use their services. I don't know what are the local laws in your countries, but in my country, if you don't pay your loans, the lenders are entitled to come after your house. However, if they can't take anything from you in more than 3 years, you can ask for your loan to be erased.
Yes, borrowing from micro lenders is the easiest way to get hold of cash especially when you are in dire need like someone is in the hospital or you are to be ejected from your rented place. And what's attractive in micro lending is the scheme of payment. For a 5,000 loan, you are to pay 100 every day for 60 days. And since 100 is very minimal compared to the principal of 5,000 people are duped.
There are various methods of microlending where I come from. One is called table banking where a group of people come together and contribute an amount of money to be loaned to several applicants in the group. Another form is the merry go round not to mention the good old shylocks which many love to hate. Asset leasing is also very popular and the least deleterious in the microlending scene.