microcredit

Microcredit

An extremely small loan given to impoverished people to help them become self employed. Also known as "microlending."

Investopedia Commentary

Renee Loth wrote an article in 2002 for the Boston Globe entitled "Women Entrepreneurs," which explores how this type of loan possibly originated. In the article Loth suggests the system started in Bangladesh in 1976, when an economics professor loaned a group of women $27 to finance their own small business. Amazingly the women repaid the loan and were able to sustain the business.

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See also: Credit, Credit Card, Microeconomics

microcredit

a means of extending credit, usually in the form of small loans with no collateral, to nontraditional borrowers such as the poor in rural or undeveloped areas. This approach was institutionalized in 1976 by Muhammad Yunus, an American-educated Bangladeshi economist who had observed that a significant percentage of the world's population has been barred from acquiring the capital necessary to rise out of poverty. Yunus set out to solve this problem through the creation of the Grameen Bank in Bangladesh. The Grameen approach is unique because the small loans are guaranteed by members of the borrower's community; pressure within the group encourages borrowers to pay back the loans in a timely manner. Grameen's clients are among the poorest of the poor, many of whom had never possessed any money and relied on a barter economy to meet their daily needs. Using microloans, borrowers are able to purchase livestock or start their own businesses. By 1996 Grameen had extended credit to more than three million borrowers and was the largest bank in Bangladesh, with more than 1,000 branches

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