What does it mean?
Microfinance means financial services in small amounts, best known for small loans, offered by specialised institutions to people banks usually turn away: home-based and very small businesses, the self-employed, and people without enough collateral.
It can also include savings, small insurance products and money transfers, often alongside training in managing money.
How does it work?
A business owner applies for a small loan, and the institution looks more at the activity and the ability to repay than at collateral. Loans are usually repaid in short, regular instalments. Some lenders use group guarantees, where members of a small group vouch for each other.
The money typically goes on equipment, raw materials or stock, things that generate income to cover the instalments.
How is it different from investment?
Microfinance is debt that is repaid with its cost, and the lender takes no share of the business. An investor pays for a share and takes part in profit and loss. Microfinance therefore suits a business with steady income that can meet the instalments.
In the Syrian context
AoSEn does not give loans or grants, but its Finance page invites banks, microfinance institutions and Islamic finance providers to partner with it through joint financial literacy sessions, referrals of eligible projects, and introducing their products to founders.
The article "Opportunity or necessity?" cites a World Bank and University of Glasgow study in post-war Bosnia and Herzegovina, which found that micro-credit helped people in informal work become successful entrepreneurs.
Example
A seamstress in rural Damascus working on an old machine takes a small loan to buy a modern one and repays it monthly from her extra output. Once it is repaid, she has a credit record that makes a larger loan easier later.
Common questions
How is microfinance different from a bank loan?
Microfinance loans are smaller, rely less on collateral and target people who struggle to reach banks. Bank loans are usually larger and ask for more guarantees and paperwork.
Does AoSEn offer small loans?
No. AoSEn gives no loans or grants, but it seeks partnerships with microfinance institutions so it can refer eligible projects to them.
Is microfinance right for a tech startup?
Usually not for a startup with no revenue yet, because repayments start quickly. It suits a small business that already sells and has steady income.