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Related to Microloans: microlending, Grameen Bank


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 ?
Alastair MacColl, chief executive of BE Group, said: "Following our involvement with funds such as Growth Vouchers and the Let's Grow grant scheme, working with Rivers Loan on the North East Microloan Fund will allow us to provide access for even more businesses to quality affordable funding.
Surge Marketing Solutions has won contracts with clients all over the UK, ranging from sole traders to local authorities, and David hopes to further enhance this early success with the loan gained from the Microloan Fund.
Other changes to the program also promote increased microloan activity and provide intermediaries with additional flexibility in how they manage program funds.
Microloans less than $50,000 don't count against MBL cap.
The new microloan service is generating demand from customers - over the first six months of 2013 every second customer signed up for repeat microloan contract.
Unfortunately, the people who are eligible for city microloans (low- and moderate-income people with an urgent need, and who are working to prevent or eliminate slums or blight, according to HUD eligibility requirements) are unlikely to secure conventional financing.
area who can benefit from a microloan, posts their profiles on kiva.
TripAdvisor then invites these travelers to choose a borrower in the country they visited to receive a USD 25 microloan on Kiva.
After getting turned down by commerciallenders, Colston considered applying for a microloan, small short-term loans ranging from $500 to $50,000 with state and federal interest rates from 3% to 18% that are offered by non-traditionallenders.
We received four times as many applications for microloans in that period alone than in the whole of November.
Funding for the microloans could come partly from Cuban-Americans, who already send significant sums to their relatives on the island, estimated at more than $1 billion a year.
Microloans have been used for purchasing inventory, supplies, furniture and equipment but cannot be used for real estate purchases or debt repayment