Explain Micro Credit.
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Microcredit, also known as microfinance, refers to the provision of small-scale financial services, primarily microloans, to low-income individuals or underserved populations who lack access to traditional banking services. The concept was popularized by institutions like the Grameen Bank in Bangladesh, founded by Muhammad Yunus, with the aim of alleviating poverty and promoting entrepreneurship.
Key features of microcredit include:
Small Loan Amounts: Microcredit typically involves providing small loans, often without collateral, to borrowers who use the funds to start or expand small businesses, purchase equipment, or cover basic needs.
Targeting the Poor and Unbanked: Microcredit targets marginalized populations, especially women, in rural and urban areas who lack access to formal financial institutions due to low incomes, lack of collateral, or limited financial literacy.
Group Lending: Many microcredit programs use a group lending model where borrowers form small groups, guarantee each other's loans, and provide mutual support and accountability.
Interest Rates and Repayment Terms: Microcredit often involves higher interest rates than traditional loans due to higher administrative costs and perceived higher risks. Repayment terms are flexible, aligned with borrowers' cash flow cycles, and emphasize regular repayments to build creditworthiness.
Social and Economic Impact: Microcredit is not only a financial tool but also a social intervention that empowers individuals, enhances entrepreneurship, and contributes to poverty reduction, women's empowerment, and economic development.
Microcredit has been instrumental in providing opportunities for economic self-sufficiency, promoting financial inclusion, and empowering marginalized communities to break the cycle of poverty and achieve sustainable livelihoods. However, effective implementation requires a holistic approach that integrates financial services with capacity building, social support, and access to markets.