microloan

A microloan, or microcredit, is a small loan extended to individuals or microenterprises that lack access to traditional banking services. The aim is to enable entrepreneurship, income generation, and financial inclusion, particularly in underserved or low-income communities. Microloans are typically modest in size, often ranging from tens to thousands of dollars, and are usually repaid over short to medium terms in regular installments.

The modern microfinance movement began in the 1970s in rural Bangladesh, spearheaded by economist Muhammad Yunus and the Grameen Bank. It popularized collateral-free lending and a focus on the poor, with an emphasis on enabling women to start or expand small businesses. Since then, microfinance has spread worldwide and diversified to include a range of lenders, including microfinance institutions, non-governmental organizations, commercial banks, and digital platforms.

Lending models vary. Many microloans employ group lending or social collateral, where peer monitoring supports repayment. Loans are often unsecured or require minimal collateral and are designed for small-scale ventures such as agriculture, crafts, or consumer services. Interest rates and fees can be higher than traditional bank loans to cover operating costs, though some programs aim for subsidized or socially oriented pricing.

Impact and criticism. Microloans can improve incomes and foster entrepreneurship, particularly for women, but evidence on poverty reduction is mixed and depends on context, support services, and market conditions. Risks include over-indebtedness and high costs relative to income in some programs. Regulation, consumer protections, and responsible lending practices are central to ongoing debates about their effectiveness and sustainability. Recent developments include digital microlending and fintech-enabled credit scoring to reach new borrowers.