Microfinance institutions are using various Credit Lending Models

throughout the world. Some of the models are listed below.

Community Banking :

The Community Banking model essentially treats the whole community as one
unit, and establishes semi-formal or formal institutions through which
microfinance is dispensed. Such institutions are usually formed by extensive
help from NGOs and other organizations, who also train the community
members in various financial activities of the community bank. These
institutions may have savings components and other income-generating projects
included in their structure. In many cases, community banks are also part of
larger community development programmes which use finance as an
inducement for action.

Cooperatives :

A co-operative is an autonomous association of persons united voluntarily to

meet their common economic, social, and cultural needs and aspirations through
a jointly-owned and democratically-controlled enterprise. Some cooperatives
include member-financing and savings activities in their mandate.

Credit Unions :

A credit union is a unique member-driven, self-help financial institution. It is

organized by and comprised of members of a particular group or organization,
who agree to save their money together and to make loans to each other at
reasonable rates of interest.

The members are people of some common bond: working for the same
employer; belonging to the same church, labor union, social fraternity, etc.; or
living/working in the same community. A credit union’s membership is open to
all who belong to the group, regardless of race, religion, color or creed.
A credit union is a democratic, not-for-profit financial cooperative. Each is
owned and governed by its members, with members having a vote in the
election of directors and committee representatives.

Grameen :

The Grameen model emerged from the poor-focussed grassroots institution,

Grameen Bank, started by Prof. Mohammed Yunus in Bangladesh. It essentially
adopts the following methodology:
A bank unit is set up with a Field Manager and a number of bank workers,
covering an area of about 15 to 22 villages. The manager and workers start by
visiting villages to familiarise themselves with the local milieu in which they
will be operating and identify prospective clientele, as well as explain the
purpose, functions, and mode of operation of the bank to the local population.
Groups of five prospective borrowers are formed; in the first stage, only two of
them are eligible for, and receive, a loan. The group is observed for a month to
see if the members are conforming to rules of the bank. Only if the first two
borrowers repay the principal plus interest over a period of fifty weeks do other
members of the group become eligible themselves for a loan. Because of these
restrictions, there is substantial group pressure to keep individual records clear.
In this sense , collective responsibility of the group serves as collateral on the
loan.

Rotating Savings and Credit Associations :

Rotating Savings and Credit Associations (ROSCAs) are essentially a group of

individuals who come together and make regular cyclical contributions to a
common fund, which is then given as a lump sum to one member in each cycle.
For example, a group of 12 persons may contribute Rs. 100 (US$33) per month
for 12 months. The Rs. 1,200 collected each month is given to one member.
Thus, a member will ‘lend’ money to other members through his regular
monthly contributions. After having received the lump sum amount when it is
his turn (i.e. ‘borrow’ from the group), he then pays back the amount in
regular/further monthly contributions. Deciding who receives the lump sum is
done by consensus, by lottery, by bidding or other agreed methods.

What are the Sustainable Development Goals (SDGs)?

The SDGs are a United Nations-sponsored effort to create a common set of

development goals for all communities in every country, with a deadline for
attainment of 2030. The idea is to get governments, aid organizations,
foundations and NGOs on the same page about what global problems most
urgently need to be solved and how to measure progress and solutions.

The hope is that getting all of these groups pointed in the same direction will
result in greater impact for massive, complex goals such as eradicating hunger
and even ending poverty — aims that many development scholars feel are
increasingly attainable. Adopted in September 2015, the SDGs replaced the
Millennium Development Goals, which were in place for the past decade and a
half. Countries started to implement the new framework in January 2016.
What were the Millennium Development Goals (MDGs)?

These goals were created through another United Nations-sponsored process

and agreed upon back in 2000. They came about with many of the same
motivations in mind: pointing the global community in a common direction on
issues of particular concern for the developing world. Eight goals were agreed
to, such as achieving universal primary education and reducing child mortality.

Supporters claim the MDGs galvanized unprecedented efforts to meet the needs
of the world’s poorest communities. Critics, on the other hand, note that there
was very uneven progress on the goals by topic, country or world region. The
2015 expiration date of the MDGs initiated a process to establish the Post-2015
Development Agenda. The SDGs, in turn, were the answer.

Who created the Sustainable Development Goals?

A high-level U. N. Open Working Group was established in January 2013 to

craft a new set of goals that would stand for another decade and a half, through
2030. Seventy U. N. member states shared 30 seats on the committee (meaning
most seats were shared by two or three countries, a so-called “troika”
arrangement).

At its final meeting, on 19 July 2014, the group unanimously approved a draft
set of 17 SDGs. In turn, these were finalized by the U. N. General Assembly at a
Special Summit on Sustainable Development from 25-27 September 2015.

What are the major differences between the SDGs and the MDGs?

The new list largely keeps the MDGs intact while updating and expanding on
some of them. For example, there are new goals related to water and sanitation,
energy, climate change and inequality.

The biggest change is that the MDGs applied only to countries in the
developing world. The SDGs, in contrast, apply uniformly to all countries, in
the developing and developed worlds alike. Thus, they aim to hold all
governments to account for their development efforts.

Did the MDGs address cities?

The closest that the MDGs came to explicitly acknowledging cities was in Goal
7: Ensure Environmental Sustainability. One of that goal’s targets read,
“Achieve, by 2020, a significant improvement in the lives of at least 100 million
slum dwellers,” with the implicit assumption that slum dwellers live in cities.

This target is considered one of the successes of the MDG process.

The U. N. claims, “More than 200 million [slum dwellers] gained access to
improved water sources, improved sanitation facilities, or durable or less
crowded housing, thereby exceeding the MDG target.”

However, the number of slum dwellers keeps growing. By 2012 it was up to

863 million, as compared to 760 million in 2000 and 650 million in 1990.

Did there end up being an urban-focused SDG?

Yes. Of the 17 finalized SDGs, one of those, Goal 11, centres on a pledge to
“make cities and human settlement inclusive, safe, resilient and sustainable.”
That goal is backed by specific targets and indicators (currently under
negotiation), such as eliminating slum-like conditions, reducing urban sprawl,
and ensuring universal access to safe and sustainable urban transit.

Goal 11 marks the United Nations’ strongest expression ever of the critical role
that cities will play in the world’s future.

Who pushed the urban SDG?

Early on there seemed to be minimal support for a specific SDG focused on

cities. However, urbanists from nearly all continents mobilized a push to
include a specific goal to address urban areas. They assembled research, built
support among the world’s local governments for the idea, lobbied the working
group and amassed a social media campaign using the hashtag #urbanSDG.
The Campaign for an Urban SDG eventually became the more formal voice of
that push, abetted inside the U. N. by the Group of Friends of Sustainable Cities,
co-chaired by Singapore and Sweden.

Proponents point to the massive population growth expected for cities in the
coming decades, with close to three-quarters of the world’s population expected
to live in urban areas by 2050. If the human condition is to improve, they argue,
it’s essential that cities function well.

Who opposed the urban SDG?

Working group representatives from a number of countries were initially
sceptical of including a goal specific to cities. They argued that other goals,
such as ending poverty or providing quality education, applied just as well to
cities as to rural areas. Some also feared that including a goal aimed explicitly at
urban areas would divert attention and international aid flows away from rural
areas.

Sceptical delegations included Great Britain, Croatia, South Korea and the
United States. Eventually, however, all joined in the unanimous committee vote
that approved the final draft SDGs list, which includes the urban goal.

What does the urban SDG mean for cities?

Some of the impact is political. Despite the increasing importance of cities

across much of the world, local authorities often struggle to win the financial
resources and legal authority necessary to deal effectively with urban problems.
The urban SDG will likely spark conversations in some countries around
decentralizing power and providing more taxation authority at city and regional
levels.

The urban goal could also raise the profile of cities in the global dialogue,
which has long been and remains dominated by the interests of nation states —
as in the broader United Nations system. A good example is the Third
International Conference on Financing for Development, which in July 2015
discussed how to allocate the expected USD 2.5 trillion in international aid that
will be doled out by 2030 to help achieve the Post-2015 Development Agenda.
With the urban SDG now on the books, some portion of that development
finance will trickle down to cities in order to tackle the urban SDG targets.

Crowd Funding

Equity-based crowdfunding (also called crowd investing) became a promising

instrument to overcome a start-up’s liquidity problems, known as the early-
stage equity gap (Veugelers, 2011). The equity gap reduces the success of new
start-ups or prevents them from fully concentrating on its core activities of their
business model (Geyer, Heimer, H€olscher, & Schalast, 2010). In 2011, around
16 % of start-ups faced this lack of financial resources (Hagen, Metzger, &
Ullrich, 2012). Thus, equity-based crowdfunding is a potential solution for
reducing this gap, because it removes barriers to equity. Crowd investing is a
subset of crowdfunding, providing a framework with which shares of young
companies or projects can be offered to the public. The innovative idea behind it
is that anyone can offer investment possibilities if minimum standards are
fulfilled and, equally, anyone can invest. Therefore, we define crowd investing
as:

“A financing method for young ventures and other commercial projects that
supports the acquisition of equity by coordinating the submission of different
forms of shares to an undefined group of possible investors through social
virtual communities.”

Unlike crowdfunding, it concentrates mainly on financing young ventures or

commercial projects by equity or mezzanine capital through the issue of shares
and thereby requires a legal body. Compared to crowdfunding, participation is
generally not rewarded by gifts or material incentives, but by return on
investment.

CHARACTERISTICS & TYPES

Create a new and interesting project

The first characteristic for successful crowdfunding campaigns is based on your

concept. The demographics of the typical crowd funder is that of the techy,
foodie and in most cases millennial. Crowdfunding is not the place for selling
accounting services. When marketed correctly, new and innovative food truck
projects do well. You cannot merely present the idea for a simple concept that
has been done to death. Show how your market is missing out on your concept
and how your food truck will eliminate that pain.

Define your customer and market

If you think your food truck menu is for everybody, it’s for nobody. Start over
and define your ideal customer. If you only had one item on your menu, who
would be the perfect person to buy it? That person is your ideal backer. Start
there.

Work before campaign launch

Before you launch you need to build up an email list. If you can build that list
prior to launch, you’ll be able to speak with your market before you launch your
campaign. I have seen trucks funded on their first day and ended up raising over
twice what they originally asked for. How? They put in the work before they
launched to find and gain permission to market to the right people.

Build a solid marketing plan

Good crowdfunding is good marketing. You probably need less than 1,000
backers to completely fund your food truck project, but you need to develop a
marketing plan to reach those people before you launch. Don’t launch and then
scramble around trying to find them (see the previous tip).

Produce a video that tells your story

Providing a video is the next characteristic for successful crowdfunding

campaigns. A great video is your chance to tell your story to the world. Explain
where you’ve been and how opening your food truck will change everything. If
you can get someone to click on your campaign link and play your video, you
have 2-3 minutes of their attention. This is priceless so don’t waste this
opportunity.

Offer great rewards

While you may think it’s a great idea to give away food as part of each of your
rewards, be careful not to give away the farm for 5 or 10 dollar backers. Start
small for the lower rewards such as a thank you, a t-shirt or even their name on
your truck.

The higher end rewards are what you want to temp backers to join in. These
rewards can be a single free meal, a menu item named after the backer, a free
catering job, or in some cases, I’ve seen food trucks offer up a free meal a week
for life.

Early and frequent communication

The final characteristic for successful crowdfunding campaigns is based on

communication. As I’ve discussed in the past, crowdfunding backers are taking
an early risk on you, so early and frequent communication is key to keep them
in the loop on your campaign’s progress.

TYPES of CROWD FUNDING

Reward Based Crowdfunding –

Here the backers or investors of a project receive tangible items or service in

return of their investment into the venture. This could either be a T-shirt, a
product manufactured by the company in which you have invested (say a
phone). 5 free car washes (if it’s a car washing company that you are backing or
the first edition of the book (if you are backing a writer to get her book
published). It is not necessary that the reward you receive is something that the
company, in which you are investing in, manufactures, creates or deals in.

Equity Based Crowdfunding –

In this type of crowdfunding, you receive a share of the company in proportion

to the money that you have invested. Every country has separate regulations
specifying whether a company can raise money from general public through a
crowdfunding platform. It is like investing in an unlisted entity and hence very
important that the investor understands the risk while committing investment in
equity based crowdfunding. If the company performs well, the investor makes
money on investment.

Debt based Crowdfunding –

As the name suggests the contribution made by the investors is treated as a loan
or debt. The money invested earns a fixed interest and the company is liable to
repay the amount invested after a fixed period.

Donation based Crowdfunding –

This type of crowdfunding is generally, but not always, raised for charitable
projects and humanitarian causes. It provides an opportunity to an individual to
share money for causes and projects that they feel strongly about, thus giving
them a chance to create an impact. A large number of contributors are asked to
donate a small amount. In return, the contributors may receive a token gift.