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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 rate revision will bring down the effective interest rate on micro loans to 17.95 percent from 18.65 percent.
This move is led by the Central Bank of Egypt (CBE) and the banks operating in the local market, which have decided to allocate a large part of their loan portfolios to women, especially micro loans, which serve female breadwinners in rural areas.
"They were an ideal fit for our micro loan fund which offers loans of PS1,000 to PS50,000."
By March next year, micro loans doled out by banks and non-bank entities without any collateral - Mudra loans as they are called - would cross the Rs5 lakh crore mark.
When the opportunity to acquire the costumes used in a medieval television drama came up, it approached Finance Wales for a PS5,000 micro loan to help fund the purchase.
Andrew Mitchell, chief executive of North East Finance said: "Many SMEs are still finding it difficult to attract finance and the Micro Loan Fund enables us to help out where there is a clear need."
Bank of America said the grants may unlock as much as $100 million in low-cost, long-term capital for small business micro loans nationwide over the next 12 months.
The average outreach of the 126 institutions is 2,400 clients--none has more than 50,000 clients and the average Islamic micro loan is similar to a conventional micro loan.
Non profit business incubator which provides shared business equipment, networking opportunities, a micro loan program, secretarial support, receptionist, resource library, conference rooms, competitive rent including utilities, internet access and more.
The event, organised by the SCW general secretariat, Micro-loan Creativity Bank and Tamkeen, will mark the graduation of the first batch of the creativity bank's micro-loan beneficiaries who shifted from the micro loan phase to that of small enterprises.
Gemma Bafico, Finance Wales' micro loan fund manager, said: "Although funding, especially for smaller loans, is widely available, our research has shown that the take-up of our loans in North Wales has fallen short and we believe there are many more businesses in that region that can benefit from this facility.
THE MICRO Loan Foundation (MLF) has come a long way since it started out two years ago 'with just a man and a bicycle,' says founder and trustee Peter Ryan.