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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 ?
However, there are also studies that indicate increased community interaction facilitated by micro-lending builds social capital, and results in positive spillover effects within the community in which the micro-credit is available (Feigenberg 2010).
They present case studies of those already embracing the "macrowikinomics" business model, such as a micro-lending company where 570,000 individuals help fund new ventures, an online community for people with life-altering diseases that also serves as a large-scale research project, and an Iraq veteran whose startup car company is "staffed" by more than 4,500 competing designers and supplied by microfactories around the world.
The programme includes a micro-lending facility, allowing the runaways to secure a loan without collateral of up to Dh1,500.
Map has seen a significant increase in business during July and anticipates further increases in micro-lending as many seek back-to-school and holiday gift-giving loans.
org, a global micro-lending website that helps low-income families create their own sustainable sources of income.
For the first time, we have the airline sector represented, as well as micro-lending financial credit organisation, one of the world's largest hotel groups, and a major Caribbean tourism destination," he added.
Citadel sets up micro-lending company Egypt-based private equity firm Citadel Capital, forayed into the microfinance sector with the establishment of a new portfolio company, Tanmeyah.
Although micro-lending on the Pine Ridge Indian Reservation following the Grameen Bank's group lending process has been suspended, other micro-lending processes continue.
Peer-to-peer lending (P2P) and micro-lending are fast becoming a primary source of credit for some cash-strapped businesses and entrepreneurs.
After a successful career in investment marketing Dakin, now 65, launched the organization five years ago in Ghana when she successfully started a micro-lending program that grants small loans to female entrepreneurs.
BLACK ENTERPRISE takes a look at three nontraditional sources for raising money: micro-lending, angel investments, and accounts receivable financing.