Posted on July 7, 2009 - by boris

Small-business owners are turning to microfinance institutions…

Warsaw Business Journal posted:

After years of obtaining loans from banks, small-business owners are once again turning to microfinance institutions for financial aid. WBJ.pl speaks to experts in the field about how the economic slowdown has given a boost to microlenders

For years small entrepreneurs have had problems securing loans to start or expand their businesses. A mechanic interested in setting up his own garage, for example, has few resources to turn to for finance. The European Union does provide a number of grants and subsidies, but the amount of paperwork involved could deter even the hardiest of businesspeople.

That is where microfinance institutions (MFIs) come in, by providing small loans to small businesses, without the overbearing bureaucracy usually associated with governmental institutions or large banks. This makes them a good fit for small entrepreneurs, whose accounting records may not be up to snuff.

A renaissance for FMIs

The current economic slowdown has brought with it a renaissance for MFIs. In recent years banks have started to appreciate small businesses as a profitable niche, but since last year they have been regularly turning away such entrepreneurs, claiming that the risks involved are too high.

Microfinance institutions’ availability of funds for small investments is bringing entrepreneurs back, said Grzegorz Galusek, executive director of the Microfinance Centre, a grassroots network of microfinance institutions located in CEE and New Independent states.

“Apart from this, [our] financial responsibility, and good practice products [brings clients back],” he added.

According to Galusek, Microfinance Centre clients are from all sectors, since his organization diversifies to lower risk. But he noted that around half of the loans taken in Poland are for the services industry.

Polish institution Fundusz Mikro has similar figures, with service-sector entrepreneurs also making up around 47 percent of their customers, according to CFO Krysztof Jaczewski. Around 44 percent are from the trade sector, while nine percent from the production industry.

According to the company’s data, by the end of January it had handed out 121,202 loans and the value of repaid loans amounted to zł.958.5 million.

Small is good

“Our strength,” Jaczewski said, “is that we don’t offer a big variety [of services]. We offer a simple product: tailor-made loans for individual borrowers.”

Small-business owners also appreciate the swiftness of the procedure, since between first contact and the approval of the loan the waiting time is often between 24-48 hours. In Fundusz Mikro’s case, the average value of such a loan is usually between zł.50,000 and zł.100,000.

Source:http://www.wbj.pl/article-46036-lending-smallbr.html