Did you know that microloans and microfinancing have their roots in the 1970s, an era focused on recognizing and finding solutions to economic struggles around the world?
This heightened awareness of social injustices and issues saw Dr. Muhammad Yunus, an economics professor at the University of Chittagong in Bangladesh, give out the world’s first microloan in 1976 to a group of local female entrepreneurs.
With a single loan of $27, these women were able to purchase materials themselves, repay the loan in its entirety and flourish as businesswomen.
Before receiving this loan, the group of 42 women were only profiting pennies on their bamboo stools due to predatory lending rates on prior loans.
This simple action laid the foundation for the modern microlending movement, a means of combating poverty through microloans and focusing on serving women in emerging markets.
Dr. Yunus created a global movement to fight the social injustices found worldwide and Road Coffee is proud to be an innovation leader within the coffee industry, bringing microloans directly to our coffee farmers.
Now, how does a microloan compare to a regular loan?
A microloan is normally defined as any loan for $25,000 or less and is offered to smallholder business owners as a way to gain access to capital. However, sometimes these loans can be as small as $27-500. They are loans of smaller dollar amounts typically used to help small businesses grow. This is a huge advantage to small business owners who may not have been able to gain finances otherwise.
Microloans are intended to help entrepreneurs who are experiencing difficulties gaining financing from other sources. Microloans tend to take two forms: a traditional term loan or peer-to-peer loans.
A traditional term loan is when the borrower receives the full loan amount from the lender upfront and then makes repayments on the principal amount and any interest incurred from the loan.
In peer-to-peer microloans, each loan is funded by individuals through a lending program and borrowers usually pitch their personal and/or business story to secure investments.
Each microloan agreement is different, as each entrepreneur and business situation is different. Amounts, repayment schedules, methods of repayment and use of the microloan all vary between borrowers.
Microloans are usually specifically for business purposes, as they were created to assist small business owners and entrepreneurs grow their businesses.
Funds from microloans can be used for many different ways in businesses, such as working capital, purchasing equipment or buying inventory.
Coffee farmers who have received microloans through our BeyondFair program have boughten fermentation tanks for their coffee beans, as well as other items.
Personal loans differ in that they can be used for virtually any purpose, including businesses. The process for acquiring this type of loan differs significantly from that of the microloan.
When applying for personal loans, financial institutions look at two factors:
There is no consideration of the performance of the business or the cash flows that it generates, even if that is going to be the main use of the loan. If either of these factors does not meet lender requirements or specifications, there is a minimal chance of being approved for a personal loan.
While they are similar in loan amounts and speed of approval, there is a significant difference between microloans and personal loans.
Did you know coffee farmers pay up to 70% interest in loans?
We want to change that.
Imagine the impact you can make by simply dropping the 0 off the 70%.
Road Coffee created our signature BeyondFair program to bring microloans directly to our coffee farmers. This groundbreaking innovation enables them to capture more value, grow their business, and benefit the lives of their family and community.
Through predatory lending Coffee farmers are kept in cycles unable to reach their full potential. It is very challenging for coffee farmers in emerging markets to access loans, and if they can they often have sky-high lending rates of 70%.
At Road, we offer 7% on micro-loans.
Microloans from Road Coffee have more benefits than just providing financial aid to a small business!
By making consistent and timely payments, a microloan can help an individual to improve their credit score. Increasing one’s credit score offers better interest rates for future use.
Microloans also offer the opportunity for smallholder business owners to receive guidance from industry professionals, whether that be for professional development as an individual or as a business. Multiple avenues for personal and professional development become available through microloans.
Microloans are empowering for their recipients. Rather than receiving a handout, a microloan aids the borrower by offering them a hand up to embark on a journey from poverty towards independence and freedom.
Microloans give borrowers learning opportunities to become financially responsible. Ensuring payments are made on time, understanding expenses and income and creating a budget to follow can have positive effects on the borrower’s credit standing. This teaches business owners to act responsibly with their funds and get organized.
At Road Coffee, we‘ve designed our micro-loan program to have a compounding effect within these farmers’ communities, offering coffee farmers and pickers further opportunities to improve their economic situations. Year after year, coffee farmers are able to continue to see the help and impact of these microloans.
By investing in the ripple effect in smallholder coffee farmers’ businesses and communities, coffee farmers are given opportunities to capture more value, grow their business, send their children to school and benefit the lives of their family and community.
You have the power to unshackle these coffee farmers and help move them into independence.
Join the Road Coffee micro-loan program today and come alongside us in unlocking the potential for these coffee farmer’s and let’s raise the tide for all of them.
Author Jordan Calladine