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Through B2B business model, companies can establish themselves as microcredit lenders that exclusively focus on low income individuals that want to borrow to specifically start small businesses and not borrow for personal consumption.
The microcredit lenders generate revenue from interest rates that must not be too high to main the legitimacy of the social benefits. Moreover, microcredit lenders often provide education on financial literacy and planning to borrowers, and often utilize social mechanisms and group-based lending to help monitor if the borrowed money is really used carefully for business purposes.
This IOA will help reduce inequalities in terms of access to finance as microcredits target low income individuals, help communities reduce the risk of violence from borrowing from informal loans and reduce household debts, and help the government in creating jobs and economic value from the growth of small businesses.
Investors can invest money in helping establish reserves, capital and financial technology for companies offering microcredits for business purposes. Examples of some companies in this space are:
Village Fund (VF) is a government initiative since 2001 to provide microcredit with low interest to low income individuals without collateral. The government first allocated money to establish a revolving fund used for the VF. In first quarter 2016, the allocated money and credit money was over USD 8.4 billion (THB 252 billion) including working capital (1).
Ngern Tid Lor PLC is a non-banking financial institution that provides microcredit. It has been developed under different names and has been in operation since 1980. It was recently funded by IFC to increase lending to micro, small, and medium enterprises (10).
Microcredit for business purposes allow for low income borrowers to gain access to capital for investments in income generating activities that will develop the grassroots economy.
