Relieving scarcity of business collateral for microenterprises

Formal financial institutions do not lend money to the poor because they often lack collateral. With no access to credit, many poor people have resorted to alternative credit arrangements such as credit rotation groups or revolving funds where people who share a common bond (same community or work together), contribute money regularly and then distribute to each member in turns. By pooling their resources, members of the credit group are able to get more money than they could ever saved as individuals.

Self-Employed Women's Association (SEWA) in India tackles the problem of individual assetlessness by relieving mortgages on properties and providing loans for buying other assets. The results are that equipment and tools of trade and other productive assets are in person's name and there is a bank balance in individual's personal bank account. She can then buy other real property like house or land using SEWA Bank's low-interest loans.

Grameen Bank (GB) has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity. GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral.