“This is not charity. This is business: business with a social objective, which is to help people get out of poverty.”
– Muhammad Yunus
The microfinance industry is relatively new when compared to the traditional banking sector. Microfinance was conceptualised circa 17 years ago, with the aim of enabling households who cannot gain access to financing from traditional banks because they earn too little. Ergo, it was originally developed as a poverty reduction tool which would change economic and social structures for the previously unbanked.
The latest statistics show that the microfinance industry was estimated at $60-$100 billion in 2015. Has the microfinance sector achieved its initial goals? Yes and No! The same statistics show that the results have been mixed because of over indebtedness and the fact that the microfinance industry is inclined towards commercialism rather than achieving its social goals; ergo, serving the poor.
Microfinance and microcredit
In order to understand car title loans Los Angeles, let’s take a look at the microfinance and microcredit definitions.
Microfinance is primarily a source of financial and banking services for entrepreneurs and small businesses who do not have access to traditional banking services. Micro financial services traditionally have two delivery mechanisms: relationship-based banking for both individuals and small business; and group-based models where a group of entrepreneurs or people collectively apply for loans and other services.
In simple terms, microcredit is a minuscule loan granted to poverty-stricken people to help them become self-employed. It is worth noting at this point that the original idea of microloans is not to dig yourself out of a short-term financial hole, rather, it is to give yourself an income-generating boost.
Furthermore, even though the essential definition of microcredit is to provide finance to enable the poor to become self-employed, it is also considered a high-risk loan as the applicants do not have a high credit rating. Therefore, the interest rate on a microloan can be as much as 300% per annum.
The ins and outs of a car title loan
A car title loan is a microloan that requires you to submit your vehicle’s title deed as collateral for the loan. It is usually a short-term loan which needs to be repaid within 36 months from the date that the loan amount was paid out. The maximum loan amount that you may apply for can only be between 25% and 50% of the value of your vehicle.
It is worth noting that your car needs to be paid-up before a car title loan financier accepts it as collateral for a loan. Should you not repay the loan within the stated timeframe, the lender has the legal right to take possession of your vehicle and sell it in order to pay the loan.
It is easy to conclude that the cost of a microloan is almost prohibitive; however, when you consider that the aim of microcredit is to help poverty-stricken people get on the feet and become self-employed, the high interest rate is worth the end goal.