What is Microcredit?

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Microcredit is a common form of microfinance that involves an extremely small loan given to an individual to help them become self-employed or grow a small business. Microcredit is also known as "microlending" or "microloan."

Definition

Microcredit is a common form of microfinance that involves providing very small loans to individuals to help them become self-employed or grow small businesses. It is also known as 'microloans' or 'small loans'.

Origin

The concept of microcredit originated in the 1970s, popularized by Professor Muhammad Yunus in Bangladesh. He founded the Grameen Bank to help the poor improve their living conditions by providing small loans. In 1983, the Grameen Bank was officially established, becoming a pioneer in microcredit.

Categories and Features

Microcredit is mainly divided into two categories: individual microcredit and group microcredit. Individual microcredit targets individual entrepreneurs, while group microcredit is usually provided to groups to reduce risk. Features of microcredit include small loan amounts, no collateral required, and short repayment periods, making it suitable for low-income populations.

Case Studies

The Grameen Bank is a classic example of microcredit. By providing unsecured small loans to the poor, it helps them engage in small business activities, significantly improving the economic conditions of borrowers. Another example is Kenya's M-Pesa, which offers microcredit services through a mobile payment platform, greatly boosting local economic development.

Common Issues

Common issues investors face when applying microcredit include high default risk among borrowers and high loan management costs. A common misconception is that microcredit is suitable for all poor populations, whereas it is more appropriate for those with entrepreneurial intent and capability.

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