For unsecured and unsecured bank loans, banks generally require higher credit qualifications of borrowers. If you have poor qualifications and no collateral or guarantee, the bank will generally not give you a loan. So who will meet the needs of these customers, a large part will flow to microfinance companies.

Microfinance doesn't need you to provide mortgage or guarantee, just lend you money on credit. Even if the customer can't pay back the money, he can't make up for the bad debt loss by selling the collateral or recovering from the guarantor. If the customer does not pay back the money, it is an irrecoverable bad debt for the microfinance company.

2. Risks caused by information asymmetry

Microfinance faces all kinds of customers. These customers are generally left behind by the picky banks, and the basic information and data of customers that microfinance companies can collect are not complete.

Because it is difficult to grasp the comprehensive information of customers, it is easy to make mistakes in decision-making because of insufficient evaluation basis when approving loans.

3. The borrower's own risks.

Microfinance service targets are mostly individuals with less qualifications and small and micro business owners. Qualification is manifested in assets, income, personal credit information and so on. In addition, there may be overdue and delayed repayment before.