Nowadays, we consider that the ancestors of micro credit are practices such as the tontine, the pawnshop. The pawnshop is a form of pawnbroking, it allows people in difficulty to pledge their valuables, to obtain a loan at a low interest rate. But the expansion of micro credit was made thanks to the experience of Professor Muhammad Yunus through the Good Finance Bank in Bangladesh.
By granting microcredit loans to the poor, Good Finance Bank has enabled many people to improve their living conditions and develop profitable businesses. The successes achieved by micro credit in Bangladesh were such that the Nobel Peace Prize was awarded in 2006. As a result, micro credit has been successfully implemented in many countries. In 2009, for example, micro-credit accounted for $ 11 billion worldwide, with more than 190 million customers.
Micro credit in France
Given the performance of micro-credit in developing countries, the European and French public authorities have decided to allow their populations in difficulty to be able to have micro-credits on the European territory. Whether in Europe or France, there is no legal definition of micro credit. France is the European country that generates the most micro credits.
In France, it is considered that for a microfinance to be classified in the category of micro credit, it must be reimbursed.
Thus, several mechanisms have been put in place to adapt micro credit to the French context. While in developing countries, interest rates for micro-credit are very high, the French government has chosen to set up an organization, such that micro-credit interest rates are affordable.
In France, this practice has a real social vocation. The aim is to fight against exclusion other than by granting allowances. This is to allow people who can not access conventional financial services, because of their personal situation, to finance their personal projects, or professionals. People eligible for micro-credit in France are often job-seekers who are compensated, workers in precarious employment (employees on fixed-term contracts, or temporary workers), social security recipients …
The fact of not having access to bank credit is not a sufficient condition to obtain a micro credit. To be eligible for micro credit, the applicant must have the financial capacity to repay the credit granted, which means the exclusion of over-indebted and destitute persons. These people will be able to turn to other devices.
Although there is no legal definition of micro credit, the French administration distinguishes two types of micro credits; personal micro-credit and professional micro-credit.
The purpose of personal micro credit
Is to provide a person with a credit of a small amount. With this credit, the applicant will be able to acquire a good or service that will allow him to enter professionally. In many cases, personal micro-credit makes it possible to finance services such as driving licenses and vocational training. The aim pursued by the borrower is his reintegration into working life. It is therefore for the unemployed, to find a job.
For people who already have a job, this micro credit can allow them to keep their job, or to claim a better job. For example, by financing training, vehicle repairs, or a move (moving house, security deposit for renting a property …).
The micro credit is always assigned to a good or a service. In no case, it will be granted to fill an overdraft, buy back credits, finance household current expenses, it is not a cash instrument. Other solutions exist to deal with these situations. As a general rule, the financing of the personal micro-credit does not exceed 3 000 $, its duration can not be greater than 3 years. Personal micro credit can not be renewed. As for the interest rate, in the context of personal micro-credit, the interest rate is fixed.
The level of interest and the funding ceiling will depend on the organization that finances the micro credit.
The micro credit professional can be used to start a business, take over a business, or finance an existing business. By adapting micro-credit to the French economy, the legislator decided that borrowers would be strongly supported. The role of these structures is to finance the project after analysis, if and only if it seems viable. These structures also take care of assisting the borrower throughout his project. After the financing of the project, the support of the entrepreneur continues throughout the life of the loan.
Personal micro credit
In France, personal micro-credit interest rates are low, in general they range from 1.5% to 4%. In terms of duration and amount of loans, conditions vary from one organization to another. But as a general rule, the amount of the loan varies between 300 $ and 3000 $, and the duration of the loan is limited to 3 years.
Although some banks participate in the scheme, the vast majority of micro credits are issued by communities, or social institutions. The advantage of personal micro-credit lies in being able to obtain lower interest rates, for example for revolving credits, in a context where other institutions refuse to lend. However, the major disadvantage is the level of borrowed money that remains low.
How to get a micro credit?
The establishment of a micro credit in France has certainly a financial component, because of the line of credit set up, but also a social component. Moreover, many associations fighting against exclusion offer micro credits. To obtain a micro credit, the public has several options that are different depending on the age, the location and personal location of the applicant, as well as the type of micro credit he will need.
Municipal and social action centers are able to provide information on micro-credits, to guide and assist applicants in their efforts. Indeed, these structures are present throughout France.
Since 2012, several banks and three institutions specializing in consumer credit have been involved in the financing of micro-credits in France.
For young applicants between the ages of 16 and 25, the local mission remains the preferred interlocutor. For all the others, the solidarity associations, the family associations, or even some temporary agencies and some specialized associations will be able to guide the applicants.
The territorial anchoring in the distribution of micro credits is very strong. For the actors of the sector, it is even essential for the accompaniment of the borrower. Indeed, the proximity allows the accompaniers to follow the borrower more easily, and to put him in relation with other beneficiaries. All the large-scale structures in the micro-credit sector have a large number of volunteers involved in supporting the project leader upstream and downstream of his request for funding. This reduces the cost of these loans.