While designing Babyloan, much thought was put into the question of how to charge the loan. Initially, we wanted to include a symbolic interest rate of 1% or 2%. The idea for Babyloan was not to propose a free solution for development aid in search of funding, as this would undermine the spirit of microcredit itself.

However, during discussions with the regular authorities (the Bank of France, the Financial Markets authority), it only appeared possible to launch this innovative project providing the loans would be interest-free. Within French law, only banks are allowed to make loans with interest... in the case of Babyloan where internet users lend money, this would require each internet user to be registered as a bank.

 

Hope remains, however, in finding a way to provide micro loans while keeping with the spirit of microcredit and charging even a symbolic rate of interest.

 

 

 

Microfinance Institutes (MFIs) are Babyloan’s invaluable field partners who conduct the actual microfinance operations.

 

Very concretely, MFIs:

1. Work directly with the microentrepreneurs and follow their projects – they are the ones to identify the entrepreneurs featured on the website and provide all the published information on the entrepreneurs.

2. Follow the development of the projects of the microentrepreneurs and provide you with regular updates on the loan status.

3. Have a social mission, operate in the field, and help their clients (the microentrepreneurs) in growing their businesses, ensuring the quality of the projects...

4. Carry the risk of their clients defaulting on the loan – in case a microentrepreneur cannot repay, the MFI reimburses you the full amount of your loan.

5. Are indispensable in sending your loans to microentrepreneurs… seeing that microcredit clients have no bank account to send the money directly to!

6. The loan contract is actually between you and the MFI, as it would be difficult to create separate legal contracts with individual microentrepreneur, some of whom cannot read.

 

 

 

The MFI carries the risk of default (i.e. that the microentrepreneur cannot repay their loan). This means that if there is a problem with the microentrepreneur whom you made a loan to (e.g. due to livestock epidemic, deaths in the family, natural disasters...), the Babyloan MFI partner and the entrepreneur work together to repay you.

Only if the MFI itself goes bankrupt will you lose your loan. This is why Babyloan carefully selects their partners using strict criteria. All of this means that the risk you take by making a loan is minimal.

 

 

 

In trying to expand the outreach of microcredit and help those in need, we use a form of refinancing rather than financing. This means that your chosen microentrepreneur already receives the loan from the MFI prior to your making the loan. However, once you make the loan, the MFI replaces the existing loan of the chosen entrepreneur with your loan. This form of refinancing is used so that the entrepreneur does not have to wait for internet users to choose their projects in order to start developing their activity and consequently improve their lives.

 

 

 

Wondering whether we will help entrepreneurs here in France as well as abroad in developing countries? YES! We are currently in contact with a microcredit organisation in France called ADIE to see whether we can start online microlending to microentrepreneurs here. For the moment, however, regulatory factors limit our activities to working with partners abroad.

 

On this note, it is good to remember there is a difference between microcredit in developing and developed countries – learn more

 

Nevertheless, even if we cannot support entrepreneurs closer to us in developed countries for the moment, we aim to create a sense of closeness and build a strong community of lenders and encourage Babyloanians to meet, create groups of reflection, investors...