Micro Credit


Micro Credit


Microcredit is the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not considered bankable. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is the provision of a wider range of financial services to the very poor.

Microcredit is a financial innovation which originated in Bangladesh where it has successfully enabled extremely impoverished people to engage in self-employment projects that allow them to generate an income and, in many cases, begin to build wealth and exit poverty. Due to the success of microcredit, many in the traditional banking industry have begun to realize that these microcredit borrowers should more correctly be categorized as pre-bankable; thus, microcredit is increasingly gaining credibility in the mainstream finance industry and many traditional large finance organizations are contemplating microcredit projects as a source of future growth. Although almost everyone in larger development organizations discounted the likelihood of success of microcredit when it was begun in its modern incarnation as pilot projects with ACCION and Muhammad Yunus in the mid-1970s, the United Nations declared 2005 the International Year of Microcredit.

History

The concept of microcredit can be traced back to portions of the Marshall Plan at the end of World War II in the middle of the 20th century or even back to the mid-1800s and the writings of abolitionist/legal theorist Lysander Spooner who wrote concerning the benefits of numerous small loans for entrepreneurial activities to the poor as a way to alleviate poverty. It is also tied to New York's Providence Fund. However, in its most recent incarnation it can be linked to several organizations starting in the 1970s and onward.

Principles

Microcredit is based on a separate set of principles, which are distinguished from general financing or credit. Microcredit emphasizes building capacity of a micro entrepreneur, employment generation, trust building and help to the micro entrepreneur on initiation and during difficult times. Microcredit is tool for socioeconomic development Sapovadia, Vrajlal K., "Micro Finance: The Pillars of a Tool to Socio-Economic Development" . Development Gateway, 2006

Focus on Women

Women have become the focus of many microcredit institutions and agencies worldwide. The reasoning behind this is the observation that loans to women tend to more often benefit the whole family than loans to men do. It has also been observed that giving women the control and the responsibility of small loans raises their socio-economic status, which is seen as a positive change to many of the current relationships of gender and class.

According to the Microcredit Summit Campaign:

"1.2 billion people are living on less than a dollar a day. Women are often responsible for the upbringing of the world’s children and the poverty of the women generally results in the physical and social underdevelopment of their children. Experience shows that women are a good credit risk, and that women invest their income toward the well being of their families. At the same time, women themselves benefit from the higher social status they achieve within the home when they are able to provide income."

Many microcredit organizations focus completely on women borrowers. Pro Mujer, SKS Microfinance and NamasteDirect are some organizations that directly work with women. The Grameen Foundation, retired UN Secretary General Kofi Annan, and Hillary Rodham Clinton all emphasize women when they speak about microcredit. (Credit: Wikipedia).

 

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Muhammad Yunus

Grameen Bank

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