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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 ?
Nicola Edwards, Micro Loan |Fund Manager at Finance Wales and (inset) Phil Wildbur, of North Wales Stone Products
The online lender said that it has provided more than CNY800m as micro loans over the past two months.
The North West Fund for Micro Loans is part of the wider North West Fund, which is financed by the European Regional Development Fund and the European Investment Bank.
The grants are available to 501(c)3 nonprofits enrolled in the SBA's 7(a) and micro loan programs as well as the USDA's upcoming micro loan program.
1m of EU Objective 1 funds, in micro loans investments of under pounds 10,000.
The enterprise for which the clients received their micro loans was overwhelmingly cited as the household's main source of income.
The strategy is to make micro loans to local entrepreneurs who set up cell phone "exchanges" basically pay phone locations giving access at low rates to people who had no access to telecom previously.
The Michael Scott Mater Foundation - MSMF is a pioneer in building sustainable communities and has partnered with Accion USA, a leading national microfinance organization, to provide micro loans in Charlotte and throughout the state of North Carolina.
Investment executive Svetlana Goode, a micro loans specialist at Finance Wales, said: "Gerwyn has had a varied career working in a number of busy, highly regarded restaurants and he also received some excellent reviews at Y Tanerdy.
com NeilHodgson6 @ A LIVERPOOL firm that installs electrical vehicle charging systems has been set up with a five-figure investment from The North West Fund for Micro Loans.
It stated : 'Also included are micro loans ranging from E500 to E10 000 targeted at market vendors and hawkers.
Wang said that there was an 'ocean' of opportunities waiting to be tapped in the micro loans segment and that the Bank of China had restructured and revised its processes to take advantage of this prospect.