Microcredit
Categories: Credit
See: MicroFinance.
A little investment can go a loooong way, as microcredit and the entire field of microfinance has shown. Today, hundreds of thousands of loans in emerging markets the size of a hundred bucks or so...happen. Chicken farmers. Weavers. Food dessicators. All products of MicroLoans.
Microcredit, also known as microloans, are small loans—typically with favorable terms—given to those who aren’t in a great place to borrow from more traditional finance institutions.
To borrow from a regular bank, you need to be able to prove you have a great pay-back history (a good credit score), prove you’re in a position to make payments (steady employment), and have collateral in case you...can't. Microcredit loans are for those who need the cash, but don’t have those qualifications. The first microcredit bank, Grameen Bank in Bangladesh (started 1983), reports a 95-98% repayment rate of microcredit loans.
Microcredit loans are the angel to the devil of loan sharks, which are known to have terrible rates, and take advantage of lower income people. Since Grameen Bank’s success, microcredit has been used as an economic development tool, reducing poverty and empowering women in low-income countries.
While microcredit sounds great in theory—and is undoubtedly better than the loan shark/payday loan alternative—some argue that they’re not as great as they’re made out to be. Some say it's helped many get off of government welfare programs...while others say it’s just privatized welfare.