Micro-financing

Date posted: July 17, 2012

One role of the financial system is to match up lenders with borrowers. However, sometimes it’s difficult for small unknown business persons to acquire funds in this kind of system. N.C. State University economist Mike Walden considers whether there is an alternative for small beginning borrowers.

“There is, … and it’s called micro-financing. And micro-financing has really grown with information technology and the internet. And what the internet has allowed to happen is, let’s say you are a small unknown company in South America and you’re in a poor region and you’re trying to develop that country entrepreneurly by developing some company — maybe it’s in coffee — but you can’t get financing. And some folks here in the U.S. like that idea. They’d like to invest in that small coffee company.

“They can do that through this mechanism called micro-financing. You don’t necessarily have to go to an established bank or financial institution to do that. Also you can do it in relatively small amounts.

“And so there are many success stories involved with micro-financing. Of course, with any business there’s not a sure thing here. So many people have really taken to this. They think this is a great idea. It allows them perhaps to serve some social functions as well as to invest in foreign countries.

“Of course, as with anything, you have to look at the details. Make sure that the investment is legitimate. Make sure the handling of your money is legitimate. But this certainly has opened up a broad new realm in the area of international finance.”

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