microcredit

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Related to Micro credit: Microfinance

microcredit,

the extension to individuals of small loans to be used for income-generating activities that will improve the borrowers' living standards. The borrowers, most of whom usually are poor women, do not qualify for a conventional bank loan, and the loans, which may be as little as $20 for very poor borrowers in some developing countries, typically are for a short term (a year or less), are not secured by collateral, and require repayment in weekly installments.

Because of the high cost, relative to the loan size, of running a microcredit program, interest rates on microcredit loans are high, sometimes as much as 35%; in the case of microcredit loans by commercial institutions, the rates may be even higher. Peer support groups consisting of other borrowers are often a component of microcredit programs, and help ensure that the borrowers repay the loans. Successful microcredit programs typically also focus on improving the education and health care of their borrowers, and do not allow individuals to borrow more than they can afford to repay.

The concept of microcredit was developed in 1976 by Muhammad YunusYunus, Muhammad,
1940–, Bangladeshi economist and banker, b. Chittagong (then in British India), grad. Vanderbilt Univ., Nashville, Tenn. (Ph.D. 1971). Yunus, who taught economics in the United States after receiving his doctorate, returned to his homeland when it won its
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, a Bangladeshi economist, as a means of alleviating the poverty and improving the lives of the very poorest inhabitants of Bangladesh. The Grameen Bank, formally established in 1983 through Yunus's efforts, expanded microcredit with the help of loans and grants, and is now self-supporting. Microcredit programs and institutions have been created in many other nations in Asia, Africa, and Latin America. Similar programs have been established to aid individuals in developed countries who do not qualify for conventional loans.

Although microcredit programs were originally operated by nonprofit organizations, a number of for-profit companies also focus on microcredit lending. The term microfinance, although often used as a synonym for microcredit, is especially used to describe commercial microlending and also may include other financial services offered on a small scale to the poor, such as bank accounts that do not require minimum balances.

Some critics see microcredit misfocused, because it is too limited to alleviate poverty in general, especially in societies where many causes other than restricted access to credit have resulted in pervasive impoverishment, but it has nonetheless improved the lives of millions of individuals and their families. The development of for-profit microlending, on the other hand, disturbs nonprofit microcredit lenders because the need for profits potentially shifts microcredit lending to those who are less poor while diminishing the resources available and the willingness to lend to the very poorest. However, in India, where for-profit microlending grew rapidly in the first decade of the 21st cent., microfinance companies in some cases lent indiscriminantly to borrowers who lacked the means to repay the loans, leading to a sharp rise in defaults in 2010 and a public backlash against the industry. Backlashes against microcredit programs and institutions (including the Grameen Bank) have also occurred in other nations, sometimes for politically motivated reasons.

References in periodicals archive ?
Major organization : THE JORDAN MICRO CREDIT COMPANY
Micro credit is the financial support to poor people to finance their private businesses and empower them economically.
The main idea that had been highlighted to increase the economic development of a whole area lies in effective way of utilization of micro credit loans and increase its benefits to big part of the population by increasing, inter alia, encourage and awareness among lenders to use rational way of utilization of loans by investing in farming and livestock or entrepreneurial business.
So that MFIs can become micro credit banks and can take deposits and lend money, they don't have to go to the market.
The micro credit summit is an international alliance initiated (by global micro credit campaign) in 1997, and the first conference was held in the same year in Washington, with partnership of AGFUND.
However, contrary to the global trends, micro credit sector has witnessed a robust growth in Pakistan, which has been ranked by the Economic Intelligent Unit among top countries for offering conducive environment for microfinance sector growth.
The respondents were therefore asked to give their views about the strengths of micro credit services provided by PRSP.
Man Sang International expands into the new Micro Credit Business in Mainland China
It operates in the villages through its various programmes such as Self Help Groups (SHGs), Joint Liability Groups (JLGs), Enterprise Development Loan, Urban Micro Credit, Dairy Loan and Agriculture Transportation Loan.
The study reviews a pilot project of a donated, cooperative fund formed for insurance of micro credit operations of 8 commercial banks financed by The Central Bank of Sudan.
During the first week of March, the Jordan Micro Credit Company (Tamweelcom) launched its new product, AoTawasol LoanAo, with the aim of providing additional financial services to TamweelcomAAEs active micro-entrepreneur and low income clients Tawasol Loan seeks to provide a constant source of finance upon request and as needed, to help TamweelcomAAEs client obtain these small amounts at any time during the year and in line with easy procedures and simplified uncomplicated processes.
Prince Talal noted that Agfund has embarked on the initiative of launching banks for extending micro credit to the poor with a strategic partnership with Bangladeshi Nobel laureate Professor Mohammad Younus, father of the Grameen Bank movement.