Microcredit: Difference between revisions

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The loan receiving groups are generally comprised of unemployed women who demonstrate an entrepreneurial drive. Women are the receivers because, in general, loans to women will benefit the entire family whereas loans to men tend to lead to more personal consumption. Giving loans to women has also tended to have the positive externality of redefining class and gender standards that are typically held in the communities in which microcredit is established.  
The loan receiving groups are generally comprised of unemployed women who demonstrate an entrepreneurial drive. Women are the receivers because, in general, loans to women will benefit the entire family whereas loans to men tend to lead to more personal consumption. Giving loans to women has also tended to have the positive externality of redefining class and gender standards that are typically held in the communities in which microcredit is established.  


New Stuff
In the mid 1970s micro-credit emerges as financial model where very small loans and micro-insurance were given to poor in third world countries.  ACCION and Grameen Bank were created this business model.  Micro-credit helps people in impoverished countries to generate income and build wealth in order to exit poverty.  Small loans are given to the poor so they can establish self-employment projects, micro-enterprises, which generate income and improve their living conditions.  These small enterprises may include sewing clothes, selling cooked goods on streets, or selling vegetables.  Micro-credit firms target women, since women tend to use loans to benefit family more than men do.  People in extreme poverty lacked the collateral, steady employment, and credit history to retain traditional loans before micro-credit.
Micro-credit lenders give small short term loans at interest rates that fairly reflect the cost of borrowing.  Different from most banks, these lenders do not focus entirely on revenue and collateral when making loans.  Instead of a tradition credit score, a loan officer judges the client on his or her drive and references from client’s customers.  Loans can be given to individuals or groups of borrowers.  Solidarity group lending acts as a form of collateral, since members of the group can cross guarantee payments to lender.
The success of micro-credit has made it gain credibility in the main stream finance industry.  Many large finance firms are looking into micro-credit as a way of generating future growth.  However, with smaller profit margins, micro-lending banks must rely on small transaction and other cost in order to see profits.  Larger firms which rely on larger profit margins and have higher costs may find it hard to find success in this newly evolving industry.





Revision as of 17:00, 17 April 2007

Microcredit refers to the giving of small loans to people who lack collateral. Small scale, non-traditional banks, most notably the Grameen Bank, distribute these loans to small groups of impoverished people with the intention that the loans spur on economic activity in the community, creating more jobs and bringing more people out of poverty.

The loan receiving groups are generally comprised of unemployed women who demonstrate an entrepreneurial drive. Women are the receivers because, in general, loans to women will benefit the entire family whereas loans to men tend to lead to more personal consumption. Giving loans to women has also tended to have the positive externality of redefining class and gender standards that are typically held in the communities in which microcredit is established.

New Stuff


In the mid 1970s micro-credit emerges as financial model where very small loans and micro-insurance were given to poor in third world countries. ACCION and Grameen Bank were created this business model. Micro-credit helps people in impoverished countries to generate income and build wealth in order to exit poverty. Small loans are given to the poor so they can establish self-employment projects, micro-enterprises, which generate income and improve their living conditions. These small enterprises may include sewing clothes, selling cooked goods on streets, or selling vegetables. Micro-credit firms target women, since women tend to use loans to benefit family more than men do. People in extreme poverty lacked the collateral, steady employment, and credit history to retain traditional loans before micro-credit.

Micro-credit lenders give small short term loans at interest rates that fairly reflect the cost of borrowing. Different from most banks, these lenders do not focus entirely on revenue and collateral when making loans. Instead of a tradition credit score, a loan officer judges the client on his or her drive and references from client’s customers. Loans can be given to individuals or groups of borrowers. Solidarity group lending acts as a form of collateral, since members of the group can cross guarantee payments to lender.

The success of micro-credit has made it gain credibility in the main stream finance industry. Many large finance firms are looking into micro-credit as a way of generating future growth. However, with smaller profit margins, micro-lending banks must rely on small transaction and other cost in order to see profits. Larger firms which rely on larger profit margins and have higher costs may find it hard to find success in this newly evolving industry.


Historical Precedent

Models

Critiques of Microcredit

Benefits of Microcredit

Success Stories

Microcredit Summit Campaign

For More Information