microcrédits

Microcrédit, or microcredit, are small loans extended to low-income individuals or households lacking access to formal banking. Typically used for income-generating activities, these loans are offered by microfinance institutions, NGOs, credit unions, and sometimes commercial banks. Loan sizes usually range from tens to a few hundred dollars, with short to medium terms. They are often collateral-free and rely on group liability or social collateral to reduce default risk. In practice, microfinance also provides savings, insurance, and payments services as part of a broader package.

Origins and model: The modern microcredit movement emerged in the 1970s in rural Bangladesh, notably through the Grameen Bank and Muhammad Yunus. The approach emphasizes low-income women borrowers, peer monitoring, and flexible repayment. The model spread worldwide, adapting to local contexts. Group lending and collective responsibility are common features used to constrain risk and encourage repayment.

Impact and evidence: Research shows mixed results. Some programs raise incomes, assets, and entrepreneurship, particularly for women; others find modest or no lasting effects. Outcomes depend on program design, local conditions, and the quality of support services. Critics raise concerns about high effective interest rates, over-indebtedness, and the risk of promoting unsustainable ventures.

Criticism and regulation: Microcredit can expand financial inclusion but faces issues of consumer protection, pricing transparency, and responsible lending. Effective regulation, client protection, and transparent accounting are regarded as essential. Some advocate savings-led models or comprehensive financial services rather than credit-first approaches.

Trends: Digital platforms, mobile money, and data analytics have increased delivery efficiency and reach. Modern microfinance often combines lending with savings, insurance, and payment services, aiming to improve resilience and inclusion. In some contexts, microcredit remains one tool among broader poverty-alleviation strategies.