It’s time to challenge the stereotypes around microlending
Microlending is a powerful tool. Done well it enables people who don’t meet the rigid requirements of traditional lenders to access credit and gain control over their financial futures.
Whether it’s helping micro-entrepreneurs get off the ground, or reducing people’s financial vulnerability during uncertain times, small loans can not only provide a lifeline to those in difficulty, they can enable people to build a more stable future for themselves and their families.
Below we explore some of the persistent myths that surround microlending, and separate fact from fiction.
A common misconception is that you can only apply for a micro-loan if you have a perfect credit score and a complete credit history.
The opposite is true. Microlenders increase financial inclusion often by offering customers an opportunity to climb the credit ladder. When talking about an individual’s financial history, nothing is black and white, and so access to credit should be appraised based on an individual’s circumstances and, more importantly, their ability and willingness to repay.
Having a poor or unestablished credit history does not automatically prevent you from applying for a small loan. Good, consistent repayment behaviour over time can open doors to bigger loans and other financial services, building your credit history.
It is wrong to assume all microlenders require you to have a house, car or other high-value item as security against a loan not being repaid.
Unsecured loan providers assess your credit worthiness by your ability to pay back the loan as well as your financial behaviour (amongst other factors); for example, paying bills consistently and on time.
Personal microloans are not just for those struggling with their finances. They can also help improve your credit score by contributing to a better mix of credit or by helping you build a payment history if you don’t yet have one. For example, customers who have recently moved to the UK and have not yet had the chance to establish a credit profile.
As with all loans, applicants are subject to affordability and credit assessments. However, microfinance in general, including microlending aims to expand access to credit in order to smooth cash flow and avoid periods of cash shortage.
A key goal of microlending is to open access to credit to broader segments of customers and to serve individuals excluded from traditional financial services like traditional bank lenders.
Having a bad credit history is not the same as being in financial difficulty. If you think you are in financial difficulty or are finding it difficult to pay your bills on time you should seek an alternative solution. To get debt advice information, we advise seeking independent advice from an impartial service like Citizens Advice or a qualified Financial Advisor.