Knowledge and Use of Microcredits Options in Low Income Small Businesses

Abstract

This study explores the awareness, perception and use of microcredits among small businesses belonging to the base of the pyramid. Two methods were used in this exploratory and descriptive research to gather primary information: in-depth interviews and an applied questionnaire to one hundred individuals.
The results show that credit for small businesses comes mainly from informal sources like payday lenders. The reasons found to explain this behavior are the inability to meet the formal requirements of the banks, the time required to disburse the loan and the personal feeling of self-exclusion from the formal system. Other reasons are the absence of paperwork and the immediate availability of money leading microcredit users to accept money from moneylen- ders. This study provides understanding of the informal financial microcredit circle and offers criteria that the formal financial system could review in order to redirect strategies to reach this segment of clients.