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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 ?
The object of the micro-credits exercise was to provide finance that could be repaid and would enable other people to benefit.
The beneficiaries of micro-credits are extremely grateful for the chance to obtain finance.
1 inauguration, then President-elect Vicente Fox attended numerous international conferences on micro-credits, sending a clear signal that social-lending programs would be a top priority for the incoming administration.
The National Fund for Social Lending (Fonaes) says it will earmark 200 million pesos for micro-credits this year alone.
A delegation of European commissioners enquired, during a visit on Thursday to Ariana ENDA, about this organisation's mechanisms and criteria for granting micro-credits ranging between 200 dinars and 5,000 dinars.
European Commissioner in charge of European Enlargement and Neighbourliness Policy Stefan Fule and European Commissioner in charge of Home Affairs Cecilia Malmstrom attended granting of 17 micro-credits with a total value of 20,000 dinars.
At a session held on Thursday at the premises of Sfax Governorate, the company promised as well to contribute to boost investments through granting micro-credits for local youths keen on setting up their own business.
The Group aims to increase a scope of financing to lower the interest rate for micro-credits.
The micro-credits will be extended for 12 months in average, soft loans will be extended for up to 3 months.
The Development Fund and AsiaUniversalBank plan to allcoate 1 billion som in total for micro-credits in 2010.
The main thing is that they extend micro-credits at soft terms for agricultural projects," Alexey Eliseev said.