What is Microcredit?
Microcredit is a fundamental part of the Microfinance concept. Microcredit involves the extension of very small loans to unemployed, small entrepreneurs and those who are living in poverty to enable them engage in self-employment projects that generate income. Normally those people lack collateral to enable them gain access to traditional credit from the banking system.
Microcredit refers to small size loans that are collateral free and are lent to low income households to meet their working capital needs. Typically, the loan size varies from Rs. 5000 to Rs. 15000.These loans are usually utilised for income generation activities. The borrower then repays the loans according to a preset repayment plan.
Microcredit is the term used to identify small loans that are made to individuals and entities that would otherwise not be able to obtain any type of credit. Often referred to as microloans, microcredit is extended to people who have no collateral to pledge for a bank loan, or who are currently unemployed or lack an acceptable credit history. The main function of microcredit is to provide financial services to those that do not qualify for standard sources of credit and assist them in achieving a better quality of life. One of the ways that microcredit works is within the structure of a wider financial strategy known as microfinance. Essentially, microfinancing often functions with the goal of assisting people to move from poverty conditions to becoming functioning and productive citizens. Within this application, people may be able to obtain poverty loans to supply the necessities of life while seeking to better their situation through training or the creation of some type of self-emp
Microcredit is the extension of small loans to people too poor to qualify for traditional bank loans. These very small loans allow the poor to develop their various businesses and trades. As a result people have the chance to bring themselves out of poverty. Microcredit goes directly to the people who need it and instills a sense of pride that can sometimes be lost with traditional charity handouts. When money is used for microcredit, it is not used once but over and over again. When a loan is repaid with interest, the money generated is given to a new borrower. In time this creates a sustainable institution, which is not reliant on continuous donations. The majority of microcredit borrowers are women because they have proven to be excellent at managing their businesses. Also, when a lady controls the finances the money she earns tends to go back into the home and to her children’s education. Professor Muhammad Yunus was one of the first people to lend money to poor people in Banglades
We met Sonia Gutierrez Vlandon during the summer of 1998 while volunteering with FINCA International (one of the microcredit organizations interviewed in Small Fortunes) in steamy Nicaragua. She had been living in a small dilapidated house with her husband and six children ever since the Sandanista government had provided the land to her family. Across the dirt access road into her neighborhood was a large pineapple field. Since moving to the area, she had been purchasing pineapples on credit at an obscene rate and reselling them in the local area. She told us how she was never able to get ahead. In 1997 Sonia joined a group of FINCA Village Bank borrowers called La Arroyito (Spanish for little stream) that met at the home of a neighbor-usually under a large, shady tree. After a few initial training sessions, Sonia received a microloan for the equivalent of 100 U.S. dollars guaranteed only by her word and backed by the social collateral of the members of her Village Bank. In turn, she
