microcredit


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Related to microcredit: Grameen Bank

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 ?
The nonprofit's mission is to empower the very poor with microcredit and the chance to create or expand a home-based business and lift themselves and their families out of poverty, with a focus on the developing world.
He said a significant portion of PPAF funding (around 75%) is provided for microcredit in the rural areas where most of the poor exist.
Le Chef du gouvernement, Abdelilah Benkirane, qui presidait cette ceremonie, a souligne que ce projet vise a accompagner les associations de microcredit a travers le financement des projets generateurs de revenus.
The 2013 Microcredit Summit will focus on "Partnerships against Poverty: Finance, Government, Business, and Civil Society.
This paper examines the connections between microcredit lending to female entrepreneurs and women's empowerment in the Middle East.
He further explained that the funds would be given to TySVA, which is an agent of the microcredit system in Turkey, and it would be responsible for distributing and collecting the loans.
If access to microcredit helps reduce poverty, then one might surmise that it could also improve investment in children's education.
By making the poor 'bankable', microcredit programmes have made a contribution toward fostering a degree of financial inclusiveness that did not exist before.
Microcredit institutions lend small amounts of money to men and women with creative solutions, who might not have the capital to fund their projects.
The Schmieding Center's project will demonstrate the effectiveness of advanced training in preparing home caregivers to play a more important role as part of the health care team for dependent older adults and for the first time promotes the use of microcredit financing for those who want to care for older adults preferring to stay in their homes," said Larry Wright, executive director of the center and associate professor of geriatrics at UAMS, in a news release.
5 million of the world's poorest families received a microloan in 2010-an all-time high, according to a report released today by the Microcredit Summit Campaign.
For years, the example of microcredit in Bangladesh has been touted as a model of how the rural poor can lift themselves out of poverty.