Business loan gives low-income Australians a way out of crisis

As job losses and wage cuts become the new normal for Australians, the question of how to earn a sustainable income has never been more relevant.

But what are your options beyond relying on government stimulus packages or payday loans that charge sky-high fees?

Global microfinance group Grameen stepped in to offer low-income Australians another way forward: creating their own small business.

Microfinance refers to small amounts of working capital that are provided to borrowers, typically excluded by traditional lenders. These loans are backed by social guarantees, which means that each group of borrowers is collectively responsible for ensuring that their members meet their repayments.

Grameen Australia CEO Adam Mooney said Grameen used to help countries and communities emerge from the crisis and that its expansion to Australia in the coming months will aim to do just that.

“We are seeing that Jobkeeper and Jobseeker are gradually declining, so we want to be there at the right time and in the right place to be able to provide the incentives to work, but also the opportunity to work for millions of people,” he says. .

While Grameen started in Bangladesh in the 1970s, its success in reaching 130,000 women in the United States over the past decade has proven that its model of microfinance can be applied to “so-called developed countries” as well.

The idea behind Grameen’s model is that it serves as a springboard for entrepreneurs to grow their business and become self-reliant.

“We want to be an enabling financial actor rather than a permanent fixture,” says Mooney.

“The ideal scenario for every business is that it generates a sufficient return, that it can grow and does not need to keep coming back for additional loans.

Mooney says the model particularly complements the migrant and Aboriginal communities of Australia and Torres Strait Islanders who “have great skills and aspiration, but have not had that kind of investment capacity to. be able to start their own business “.

For example, Grameen’s group formation structure lends itself well to the principles of collective wealth and collective identity that are culturally familiar to Indigenous peoples.

So how does Grameen work?

With Grameen, loan amounts range from $ 5,000 to $ 10,000. The interest rate is set at around 10-12%. It just covers operational costs, says Mooney, because Grameen is a non-profit organization and makes no return on investment.

But Grameen is not just another financing option. Her model also involves ongoing support through peer groups, where entrepreneurs come together in groups of five and discuss their aspirations, strengths, and business development plans.

From there, Grameen “offers mentoring, partnership, training and capacity building, as determined not by Grameen but by the groups or entrepreneurs themselves,” Mooney explains.

In addition, there is a savings component where entrepreneurs are encouraged to set aside part of their income – 15-20% of the repayments they agree to make.

“If someone commits to $ 100 [per week or fortnight], $ 80 of that could be used to pay off their loan and $ 20 of that could go into a savings vehicle, ”says Mooney.

Participants can park this money in any savings account they would love to, but they are encouraged by group conversations to keep it as a emergency fund.

“That way, not only is the loan paid off, but they will also have $ 1,000 or $ 2,000 in savings that can act as a resilience buffer in the event of an unexpected shock to the business,” says Mooney.

Am I eligible?

Unlike the traditional business loan, you will not be subject to any credit checks. Instead, “it’s more of a demographic,” says Mooney.

Grameen primarily targets women from low-income backgrounds. They may be unemployed or underemployed for some time, or have been made redundant due to job loss, but wish to resume economic activity. They have a skill or a strength that they wish to develop in a business enterprise and they agree to participate in the formation of the peer group.

Looking for other ways to finance your new business? Read our article on business loans for startups.

About Elizabeth J. Swartz

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