Micro-lending as a Model for Efficient Commercial Small-Scale Lending and its Application in Banks

This article argues that:

• Commercial banks hesitate to finance small and medium-sized businesses because the profit from these businesses stays below standard levels;
• However, this retreat reduces the relevant market of the banks;
• Industrialized countries are attempting to cater to this market segment through micro lending.

The article explains some of the successful techniques of microlending. It states that micro-lenders:

• Take the following measures to guarantee access to a competent first counseling:
  • Actively acquiring potential clients;
  • Informing clients about the product and procedure through group counseling;
  • Providing complex advice at partner organizations with public funding.
• Investigate credit worthiness through visiting sites, examining bills, evaluating character and creating specific databases, etc.
• Keep the size of the first loan small;
• Use the technique of stepping to give incentives to the borrower to repay the loan;
• Continually adjust financing and support systems;
• Ensure regular counseling, reviewing and training;
• Use frequent contacts to identify a credit crisis immediately and intervene quickly.

The paper concludes by identifying the following strategies to implement microlending in the banking sector

• Internal implementation;
• Cooperation;
• Founding of a specialized subsidiary company;
• A change in outlook.