microcredit

(redirected from Micro-credit)
Also found in: Dictionary, Financial, Wikipedia.

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
..... Click the link for more information.
, 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 ?
In addition to micro-credit, a support service is available to give each project promoter an opportunity to reinforce his/her knowledge and increase his/he performance in entrepreneurship.
Since its launch in 1995, Enda has granted micro-credits for a cumulative value of more than 2 billion dinars to some 650,000 Tunisian micro-entrepreneurs, half of them in rural areas.
Similarly, Waheed (2009) also concluded that micro-credit along with education are the basic tools to generate higher income and reduce poverty in rural areas of Punjab.
Thus, this study indicates the planned used by micro-credit and minimal level of use of micro-credit for no planned purposes.
17 billion (out of available 18 billion) have been deployed for access to micro-credit.
In Mozambique, PWRDF works with the CAIXAs, micro-credit organizations based in three cities around the country which specialize in giving small loans to women who would otherwise not be able to access the banking system.
MANILA -- Re-elected Muntinlupa City Representative Rodolfo Biazon on Thursday urged the 16th Congress to fast track the approval of a measure establishing micro-credit financing.
Bangladesh Nobel Peace Prize winner and micro-credit pioneer Muhammad Yunus has pledged to 'put poverty in the museum' as he spoke at a summit (Vienna, November 7) promoting his idea of 'social business'.
The increase in banking in the country is another factor cited as causing the recovery of micro-credit, along with increased demand for loans, after uncertainty caused by the 2008 crisis.
The respondents considered most of the dimensions of micro-credit quite good but they were hardly satisfied with the amount of credit by PRSP.
D in Economics in 1969 and returning to Bangladesh in 1974, Yunus launched micro-credit financing.
He told that in order to provide better economic opportunities to the brick kiln labourers, micro-credit scheme has been launched and Rs.