Microcredit
Candlefocus EditorMicrocredit is a method of providing small amounts of financial support to individuals living in economically disadvantaged communities. It is an innovative approach to alleviating poverty that is focused on providing capital and resources to low-income individuals to start or grow a small business. By providing access to capital, these disadvantaged individuals have the potential to turn subsistence poverty into self-sufficient entrepreneurship.
Microcredit originated in its modern form in Bangladesh, where Nobel laureate Muhammad Yunus founded Grameen Bank in the mid-1970s. The Grameen Bank pioneered the concept of group borrowing, where a number of individual borrowers join together to access larger sums of credit than would be available if they applied as individuals. This turns into a form of social investment, as members of a group are mutually responsible for ensuring each other’s loan repayments. Since Grameen Bank’s establishment, the concept of microcredit has been acknowledged and applied across the world, with thousands of microfinance projects operating in developing countries.
The concept of microcredit has been successful in helping alleviate poverty in many countries. Low-income individuals, who may not possess the necessary collateral or credit history to access large amounts of credit from formal institutions, may be able to access small sums from microcredit initiatives. This allows these entrepreneurs to acquire start-up capital, or expand a small business to improve their economic circumstances. Microcredit has enabled individuals to break the cycle of poverty caused by a lack of resources, while also creating new jobs and generating economic growth in local communities.
However, microcredit is not a tool that is suitable for all scenarios. Studies have shown that microcredit is more effective when provided to educated and more established entrepreneurs, as opposed to uneducated, low-income individuals who are at the beginning stages of forming a business. Effective implementation of microcredit also requires the support of enabling legal and financial environment, such as access to markets, technical training and other financial services such as savings and insurance.
Microcredit has become a successful means of providing economic opportunities to people who may otherwise not have access to these resources. It has enabled millions of individuals to ascend from poverty to self-sustaining entrepreneurship, and this affords people the chance to realise their potential and share in the joy of economic success.