Microfinancial Capital Accumulation – In keeping with the concept of non-traditional savings methods, like Pardner and Susu, we would like to introduce the concept of Microfinancial Capital Accumulation as a way to improve your financial standing. l If you have never heard the term micro-financial capital accumulation it can be simply described as a method of savings that allows you to save even though you may have relatively small amounts to spare.
If you are earning minimum wage or maybe a little more, do not despair you can still save money. This system specifically formulated to help those who may not have much liquidity. Here we will explore exactly what this term means.
What Is Microfinancial Capital Accumulation?
In order to understand what microfinancial capital accumulation is, you have to understand the two terms namely microfinance and capital accumulation. Microfinance is essentially a financial service provided to low-income earners and unemployed persons. Most of the time, these potential clients do not meet the criteria to access traditional banks and other financial institutions.
Capital accumulation is, in essence, an activity that is geared towards increasing wealth. You increase your wealth by increasing your assets. You can increase your capital or assets by investment or profits.
So, the concept of micro-financial capital accumulation is to provide affordable financing to persons who may ordinarily not have been able to access it with the long-term goal of increased wealth and savings.
Who benefits from microfinancial capital accumulation services?
The persons who usually access micro-financial services are:
Low-income earners (minimum wage earners)
Small business owners & Entrepreneurs- This group of people usually need help to get their business endeavour off the ground. They usually have little more than their business plans.
What Kind Of Microfinancial Capital Accumulation Institutions Are Available?
If you are looking to explore microfinance options to grow your capital. You need to know where to look. Microfinance service providers are as follows:
Microfinance NGOs (non-governmental organizations)
Non-bank financial institutions (NBFIs)
What Are The Micro-Financial Capital Accumulation Services Offered?
Micro financial institutions offer the following services:
Loans- Most of the time low-income earners or the unemployed often need loans to get their heads above water. They may have outstanding bills and day to day expenses that need to be covered before they can begin to accumulate capital.
Savings & Chequing Accounts- These accounts at micro-financial institutions do not have a minimum amount to be deposited. Often, they allow you to deposit whatever you can afford to put into your account. Low-income earners often need access to their money for their day-to-day expenses. While they may want to save, they still have to live. Microfinance accounts give clients the flexibility that they need.
Micro-insurance-While this facility does not contribute to the capital accumulation in the traditional sense unless tragedy (illness, loss of limbs etc). It does provide much need medical insurance that offsets the cost of medical expenses.
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The good thing about micro-financial institutions is that you are able to access the services without the requirements that traditional banks and financial institutions usually request. A traditional bank usually asks you to provide the following to get a loan:
Credit History- If you are in the low-income bracket, chances are even if you can produce your credit history, it is not going to be flattering.
Financial statements- Again, when you are looking to acquire a loan from a bank or other traditional financial institution, they usually want to see your statements to get an idea of what your cash flow looks like. Your financial statements may work against you rather than for you at a traditional bank.
Collateral- This is what the banks holds in case you can’t pay the loan installments. Collateral can be land, house, expensive jewellery or your car. If you need a microfinance loan may not have collateral at hand.
Job letter- This is documentation from your current employer stating how long you have held your job, your job title and what your monthly or weekly salary is. Of course, if you are unemployed you are not going to have this document.
These requirements make getting assistance from traditional banks extremely difficult and as such low-income earners usually approach micro-financial institutions.
Where In The World Is Microfinance Capital Accumulation Most Popular?
It is no surprise that microfinance institutions are popular in developing countries.
They are used mainly in Africa, the Caribbean and Asia. However, they can also be found in the United Kingdom. While poverty levels may be low in the developed world, it still exists.
Micro financial institutions are designed to help the disadvantaged regardless of where they live.
What are the distinct advantages of micro-financial capital accumulation?
While no system is perfect, micro-financial institutions offer hope to persons who would otherwise not be able to plan their financial future. Here is a list of the advantages that users experience:
Microfinance often empowers women. Often women are the ones who reach out to these institutions to improve the family’s financial situation.
Microfinance encourages futuristic thinking. When you meet with a representative from a micro-financial institution, they will ask you questions that push you to plan and organise your finances.
Microfinance often helps community development by aiding small businesses in an area.
Are There Any Disadvantages Of Micro-Financial Capital Accumulation?
While micro financial systems have a lot to offer, there are certain drawbacks that have to be mentioned.
Microfinance loans are expensive. The interest rates are usually extremely high. This is understandable since you do not have to put up any collateral in order to access the loan facility.
Microfinance often remains a small scale offer. As the name suggests, microfinance does not deal with a large amount of money.
Micro-financial capital accumulation is a way to empower those who may be struggling financially. It offers hope to those who may be otherwise rejected by traditional financial institutions. Everyone deserves a chance to improve their financial future.
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The facilities that micro-financial institutions offer might just be the mechanism that helps your finances to grow or gets you back on your feet.