microcredit

Very small loans (<$100) to poor people

Loans to those who lack:� Collateral� Steady employment� Credit history� Therefore, can’t get traditional credit.� Village money lenders have been only source of credit.� Objective to develop self-employment projects.

Grameen Bank� Founded by Muhammad Yunus in 1976 in Bangladesh.

Won Noble Prize in 2006.� In 1974 loaned his own money to 42 people including a

woman who made bamboo furniture.� 96% of loans to women.� Loans to “solidarity groups” helps ensure repayment.

Microfinance Now� Thousands of institutions.� Serving millions of poor people.� Loan is preferable to aid.� Banks now offering micro loans.� Poor entrepreneurs possess skills just don’t have the

capital.� Typical interest rate 11-12%.

Criticism�Microcredit provides govt’s rationale for reducing

their anti-poverty, education & health programs.� Success primarily judged from lender’s view (high

repayment rates & financial viability).� Borrowers’ become dependent on for normal hh

purchases rather than investment.�Men spend the money while women stuck with the

debt.