What is Microcredit?

Fulfilling Dreams and Aspirations of the Poor

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 Bangladesh. He saw that a very small amount of money could dramatically change the direction of someone's life. He went on to establish The Grameen Bank, which currently serves over 7 million families.

The Grameen microcredit program has a convergence of these basic features:

• Promoting credit as a human right.
• Helping poor families help themselves to overcome poverty.
• Basing loans on trust, not collateral.
• Creating self–employment for income–generating activities and housing for the poor.
• Rejecting conventional banking methodology and creating its own.
• Bringing the bank to the people, rather the reverse.
• Requiring borrowers to form a small group of borrowers.
• Providing loans in a continuous sequence when previous loans are repaid.
• Repaying loans weekly or biweekly.
• Availability of simultaneous loans to a borrower.
• Obligatory and voluntary savings programs for borrowers.
• Changing interest rates at or lower than the commercial rates; and giving high priority to building social capital that develops individual leadership, promotes education and technology, and concern for the environment.