microcredit

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Related to Micro-Loans: microlending

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 ?
It was mainly micro-loans worth 15-20,000 manats," he noted.
As of November 24, 2017, a total of 16,210 micro entrepreneurs have been aided by P3 with four national micro finance institutions (MFIs) and 90 local conduits assisting in delivering the micro-loans in the countryside while 45 MFIs are in the pipeline.
Online marketplace Amazon India, the Indian arm of the US e-commerce giant, has said that sellers on its platform will be offered unsecured micro-loans, as low as INR100,000, at interest rates as low as 10.
Erste Bank and the participating Sparkassen (thrifts) 2 are providing funds for the extension of micro-loans under the program.
EDC), the new micro-loan program is open to residents who are currently part of the Ontario Works program.
Micro-loans which are directed to productive activities in the economy are essential.
KIVA is a non-profit organization that provides micro-loans in an effort to help alleviate poverty.
Ms Edwards will head a team of three investment executives based throughout Wales focused on making micro-loans of between PS1,000 and PS25,000.
Coco and Gentoo are working together to set up a fund to provide micro-loans in East Africa.
The company and the North East athletes charity COCO are working together in order to set-up a fund to provide micro-loans in East Africa.
Controlling arrears: Stringent control of arrears is essential due to the short-term nature of micro-loans, lack of real collateral and higher payment frequency (e.
In recent years, the idea of providing micro-loans to potential small-scale entrepreneurs, in the third world and in other areas of poverty, has gained wide-spread notoriety and praise.