How Solidarity Financing Works For Small Business Community Projects

For those going through extreme hardship a solidarity financing system was invented not so many years ago that provides a way of escaping such adverse situations. The whole idea is to create a network of collaborators in order to reduce the risk implied in lending to people undergoing such difficult situations. Though simple, the way these programs work is amazing and can provide a real solution with much better results than mere charity.

These programs work best on small communities as the need for several relations between different people is better served on small towns rather than on cities due to the personal isolation that big cities (ironically) cause. There are organizations all over the world taking this idea and putting it into practice with the aid of financial institutions and governments. The results are wonderful but let us analyze how these programs exactly work.

The Solidarity Concept

Since one would normally not qualify for a loan due to lack of credit or due to bad credit, a network of co-signers is generated. A group of people oblige themselves to repaying the loans and the loans of the others as well in case someone fails to repay the loan. Thus, the risk is reduced for the lender and the borrower can obtain financing. The group carries out a kind of control over the individuals and their small business project to make sure they will not have to repay the other loans themselves.

Thus the network works both as a co-signing team reassuring repayment for the lender and also as an assurance of the viability of the business project of each of the individuals that requested the loan for starting the project. This way, the non-profit organization reduces the costs associated to controlling the projects and can concentrate mainly on selecting projects considering initial viability and letting the network to carry on the control.

Purpose Of The Funds
Currently, the only purpose acceptable for the funds is to finance a business, commercial or manufacturer project. The amounts offered are quite small because the idea is to help as many people as possible start up a small project to create their own source of income. These loans are especially targeted for those who are unemployed and for those communities that present hardship situations like high unemployment, illiteracy, etc.

If the first project works and the money is returned, this is recorded at the organization’s files and then more funds can be available for further developing the project. The inclusion of other members of the community in the project can be required. This tends to generate employment and boost the community to escape from the vicious circles that hardship implies.

The consequences of these programs on communities are not only economical in nature, there are many positive cultural, health and humanitarian implications that show how advantageous implementing these projects can be. Whole communities that where disappearing for different reasons have seen their towns flourish again thanks to this new concept loans. This is a great example of how small things (small amounts and small ideas) can achieve great results.

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