Microlending

Microlending refers to the provision of small loans to individuals or micro-entrepreneurs who lack access to conventional banking services. Loans are typically modest in size, repaid over short periods, and may be offered with limited or no collateral. Common features include group lending, where borrowers form a circle that guarantees peers, and a focus on borrowers’ ability to repay based on expected cash flows rather than assets.

The modern microlending movement began in the late 20th century in South Asia, inspired by the Grameen Bank model in Bangladesh and its founder Muhammad Yunus. The approach spread worldwide through non-governmental organizations and microfinance institutions, aiming to alleviate poverty by enabling self-employment and income generation for the rural and urban poor. Over time, the model has incorporated a range of delivery channels and financial services beyond loans, including savings and insurance.

Delivery channels vary and include microfinance institutions, nonprofit organizations, commercial banks, and increasingly fintech platforms. In many programs, group lending and social collateral reduce or eliminate the need for formal collateral, and digital tools such as mobile money facilitate outreach to remote borrowers. Loans may be complemented by financial literacy, business development guidance, and savings products to support sustainable repayment.

Impact and criticism are mixed. Some borrowers experience improved income stability and business growth, while others see limited poverty reduction or face higher effective interest rates and debt burdens. Critics caution about over-indebtedness, dependence on donor funding, and disparities in outcomes across contexts. Regulators in many countries oversee MFIs to balance access with consumer protection and prudential standards.