- This article is for small loans, often combined. For direct payments to individuals for a particular project, see Micropatronage. For financial services for the poor, see Microfinance. For a small payment, see Micropayment.
Microcredit is an extension of very small loans ( microcredit ) to poor borrowers who typically have no collateral, fixed employment, or verifiable credit history. It is designed to support entrepreneurship and reduce poverty. Many recipients are illiterate, and therefore can not complete the documents necessary to get a conventional loan. In 2009 an estimated 74 million people hold micro loans totaling US $ 38 billion. Grameen Bank reported that the success rate of payments ranged between 95 and 98 percent.
Microcredit is a part of microfinance, which provides a variety of financial services, especially savings accounts, to the poor. Modern microcredit is generally thought to have originated from the Grameen Bank established in Bangladesh in 1983. Many traditional banks later introduced microcredit despite initial doubts. The United Nations declared 2005 the International Year of Microcredit. In 2012, microcredit is widely used in developing countries and presented as having "great potential as a tool for poverty alleviation." Microcredit is a tool that can help reduce the feminization of poverty in developing countries.
However, skeptical approaches are suggested when assessing the effectiveness of microcredit. Critics argue that microcredit does not have a positive impact on gender relations, does not reduce poverty, has led many borrowers into the debt trap and is a "privatization of welfare". The first randomized microcredit evaluation, conducted by Esther Duflo and others, showed mixed results: no influence on household expenditure, gender equity, education or health, but the number of new businesses increased by a third compared with the control group.
Video Microcredit
Histori
Awal Dini
Ideas related to microcredit can be found at various times in modern history, such as the Starr-Bowkett Society. Jonathan Swift inspired the Irish Loan Fund in the 18th and 19th centuries. In the mid-19th century, an anarchist individualist Lysander Spooner wrote about the benefits of many small loans for entrepreneurial activity to the poor as a way to reduce poverty. At about the same time, but independently for Spooner, Friedrich Wilhelm Raiffeisen established the first cooperative loan bank to support farmers in rural Germany. In the 1950s, Akhtar Hameed Khan began distributing group-oriented credit in East Pakistan. Khan uses the Comilla Model, where credit is distributed through community-based initiatives. The project failed because of the over-involvement of the Pakistani government, and the hierarchy made in the community when certain members began to exercise greater control over loans than others.
Modern microcredit
The origins of microcredit in its current incarnation can now be attributed to several organizations established in Bangladesh, especially Grameen Bank. The Grameen Bank, generally regarded as the first modern microcredit institution, was founded in 1983 by Muhammad Yunus. Yunus started the project in a small town called Jobra, using his own money to provide small loans with low interest rates to the rural poor. Grameen Bank was followed by organizations such as BRAC in 1972 and ASA in 1978. Microcredit reached Latin America with the formation of PRODEM in Bolivia in 1986; bank which later turned into BancoSol profit. Microcredit is rapidly becoming a popular tool for economic development, with hundreds of institutions emerging throughout the third world. Although Grameen Bank was formed initially as a non-profit organization that relies on government subsidies, it became a corporate body and was renamed Grameen II in 2002. Muhammad Yunus was awarded the Nobel Peace Prize in 2006 for his job of providing micro-credit services to the poor.
Maps Microcredit
Principles
Economic principles
Microfinance organizations were originally created as an alternative to "lenders" who are known to utilize clients. Indeed, many microlenders begin as nonprofits and are operated with government funds or private subsidies. In the 1980s, however, the "financial system approach," influenced by neoliberalism and disseminated by the Harvard Institute for International Development, became the dominant ideology among micro-credit organizations. Micro-credit commercialization officially began in 1984 with the establishment of Village Unit (BRI-UD) within Bank Rakyat Indonesia. Village Units offer micro credit 'kupedes' based on market rates.
Many microcredit organizations now function as independent banks. This causes them to charge higher interest rates on loans and put more emphasis on savings programs. In particular, Village Units have charged more than 20 percent for small business loans. The application of neoliberal economics to microcredit has generated much debate among scholars and development practitioners, with some claiming that the director of a microcredit bank, such as Muhammad Yunus, implements leeches for their personal enrichment practices. Indeed, academic debates predict a Wall Street-style scandal involving Mexican microcredit organization, Compartamos.
Even so, the numbers show that ethical microlending and earnings of investors can go hand in hand. In the 1990s, a rural finance minister in Indonesia showed how the Village Unit could cut interest rates by about 8% while still providing attractive returns for investors.
Group Loan
Although loans to groups have long been an important part of microcredit, microcredit initially began with the principle of lending to individuals. Despite the use of solidarity circles in the 1970s, Jobra, Grameen Bank, and other early microcredit institutions initially focused on individual lending. (The circle of solidarity is a group of borrowers who provide encouragement, information, and mutual help when needed, although the loan remains the responsibility of the individual.) Indeed, Muhammad Yunus spread the idea that everyone has the potential to become an entrepreneur. The use of group loans is motivated by economies of scale, as the costs associated with monitoring loans and enforcing payments are significantly lower when credits are distributed to groups rather than individuals. Often loans for one participant in a group loan depend on successful payments from other members, thereby transferring the responsibility of repayment from the microcredit institution to the borrower.
Loans for women
Loans for women have become an important principle in microcredit, with banks and NGOs such as BancoSol, WWB, and Pro Mujer serving women exclusively. Pro Mujer is also implementing a new strategy to combine microcredits with health care services, because the health of their clients is critical to the success of microcredits. Although Grameen Bank initially attempted to provide loans to men and women of the same rate, women now account for ninety-five percent of bank customers. Women continue to reach seventy-five percent of all microcredit recipients worldwide. Exclusive lending to women began in the 1980s when Grameen Bank found that women had higher pay rates, and tended to receive smaller loans than men.
Example
Bangladesh
Grameen Bank in Bangladesh is the oldest and most renowned microfinance institution in the world. Grameen Bank launched its US operations in New York in April 2008. Bank of America has announced plans to provide more than $ 3.7 million in grants to nonprofits to use in support of the microloan program. The Accion U.S. Network, a more famous US subsidiary of Accion International, has provided more than $ 450 million in microcredit since 1991, with a payment rate of over 90%. One study study on the Grameen model shows that the poor are safer borrowers because they place more value on relationships with banks. However, efforts to emulate Grameen-style solidarity loans in developed countries are generally unsuccessful. For example, the Calmeadow Foundation tested similar peer lending models at three sites in Canada during the 1990s. It concludes that various factors - including difficulties in achieving market targets, high client risk profiles, their general dislike for joint responsibility obligations, and high overhead costs - make lending solidarity untenable without subsidies. Microcredit has also been introduced in Israel, Russia, Ukraine and other countries where micro loans help small businesses overcome cultural barriers in the mainstream business community. The Israeli Free Loan Association (IFLA) has lent more than $ 100 million in the last two decades to Israeli citizens of all backgrounds.
India
In India, the National Bank for Agriculture and Rural Development (NABARD) financed more than 500 banks lending funds to self-help groups (SHGs). SHG consists of twenty or more members, of whom the majority are women of the poorest castes and tribes. Members save money in small amounts, as little as a few rupees per month in group funds. Members can borrow from group funds for various purposes ranging from domestic emergencies to school fees. Because SHG proves able to manage their funds well, they can borrow from local banks to invest in small businesses or agricultural activities. Banks usually lend up to four rupees for each rupee in group funds. In Asia, borrowers generally pay interest rates ranging from 30% to 70% without commissions and fees. Nearly 1.4 million SHGs consisting of about 20 million women now borrow from banks, which make the SHG-Bank Linkage India model the largest microfinance program in the world. Similar programs are developing in Africa and Southeast Asia with the help of organizations such as IFAD, International Opportunities, Catholic Relief Services, Compassion International, CARE, APMAS, Oxfam, Tearfund and World Vision.
United States
In the United States, microcredit is generally defined as a loan of less than $ 50,000 to people - most entrepreneurs - who can not, for various reasons, borrow from the bank. Most nonprofit micro lenders include services such as financial literacy training and business plan consulting, which contribute to the cost of providing these loans, but also, the groups say, to the success of their borrowers. One such organization in the United States, Accion U.S. Network is a nonprofit microfinance organization headquartered in New York, NY. This is the largest and only national nonprofit microfinance network in the US. The US Accion Network is part of Accion International, a US-based nonprofit organization that operates globally, with the mission of giving people the financial tools they need to create or grow a healthy business. The domestic Accion program started in Brooklyn, NY, and grew from there to become the first national network microlender. The US microcredit program has helped many impoverished but ambitious borrowers to improve their fortunes. A study conducted by the Aspen Institute on 405 micro-entrepreneurs shows that more than half of borrowers have escaped poverty in five years. On average, their household assets grew by nearly $ 16,000 during the period; group dependence on public aid fell by more than 60%. Several corporate sponsors including Citi Foundation and Capital One launched Grameen America in New York. Since then, financial clothing - not banks - has served the poor, especially women, across four of the five city districts (Bronx, Brooklyn, Manhattan and Queens) as well as Omaha, Nebraska and Indianapolis, Indiana. In four years, Grameen America has facilitated lending to over 9,000 borrowers worth more than $ 35 million. Already, as Grameen CEO Stephen Vogel knew, "99 percent payout rate."
Peer-to-peer lending via the Web
The principles of microcredit have also been applied in an effort to address some non-poverty-related issues. Among other things, some Internet-based organizations have developed platforms that facilitate the form of inter-peer loan modifications where loans are not made in the form of single direct loans, but as aggregation of small loans- Increases with negligible interest rates.
Examples of platforms that connect lenders to micro-entrepreneurs through the Internet are Kiva, Zidisha, and the Microloan Foundation. Another WWW-based microlender, United Prosperity, uses variations on the usual microlending model; with United Prosperity, micro lenders provide guarantees to local banks that then re-lend twice that amount to micro-entrepreneurs. United Prosperity claims this gives greater influence and allows micro entrepreneurs to develop credit history with their local banks for future loans. In 2009, the US-based nonprofit Zidisha became the first peer-to-peer micro loan platform to link lenders and borrowers directly across international borders without local intermediaries. Vittana allows peer-to-peer loans for student loans in developing countries.
Impact of microcredit
The impact of microcredit is the subject of much controversy. Proponents claim that it reduces poverty through higher employment and higher incomes. It is expected to improve nutrition and improve the education of the borrower's children. Some argue that microcredit empowers women. In the US, UK and Canada, it is said that microcredit helps recipients to graduate from welfare programs.
Critics say that microcredit does not increase revenues, but has pushed poor households into debt traps, in some cases even leading to suicide. They added that money from loans is often used for consumption goods or consumption that is durable rather than used for productive investment, which fails to empower women, and that it does not improve health or education.
Existing evidence suggests that in many cases microcredit has facilitated the creation and growth of businesses. This often results in entrepreneurship, but may not necessarily increase revenue after interest payments. In some cases, it drives borrowers into debt traps. There is no evidence that microcredit has empowered women. In short, microcredit has achieved less than what its supporters say, but its negative impact is not as drastic as some critics have pointed out. Microcredit is just one factor that affects the success of a small business, whose success is affected by a much greater degree of how much a particular economy or market grows.
Unintended consequences of microfinance include informal intermediation: That is, some entrepreneurial borrowers mediate informally between microfinance initiatives and poorer micro-entrepreneurs. Those who are more easily eligible to divide microcredit into smaller credits even to poorer borrowers. Informal intermediations range from ordinary intermediaries at the end of a good or benign spectrum to 'loan sharks' at the end of the professional and sometimes criminal spectrum.
Improved
Many scholars and practitioners suggest an integrated service plan ('credit-plus approach') rather than just providing credit. When access to credit is combined with savings facilities, non-productive loan facilities, insurance, business development (production-oriented training and management, marketing support) and welfare-related services (literacy and health services, gender and social awareness training), adverse effects discussed above can be reduced. Some argue that more experienced entrepreneurs who get loans must qualify for larger loans to ensure program success.
One of the main challenges of microcredit is providing small loans at affordable cost. Interest rates and global average costs are estimated at 37%, with rates reaching as high as 70% in some markets. The reason for high interest rates is not primarily the cost of capital. Indeed, a local microfinance organization that receives interest-free loans from an online microcredit platform, Kiva charges interest and rates on average by 35.21%. Conversely, the main reason for the high cost of microcredit loans is the high cost of traditional microfinance operations transactions compared to the size of the loans. Microcredit practitioners have long held that such high interest rates are inevitable. The result is that the traditional approach to microcredit only makes limited progress in solving its intended problem: that the world's poorest people pay the world's top costs for small business growth capital. The high cost of traditional microcredit loans limits their effectiveness as a tool for poverty reduction. Borrowers who do not manage to get a rate of return at least equal to the actual interest rate could end up poorer as a result of receiving a loan. According to a recent survey of microfinance debtors in Ghana published by the Center for Financial Participation, more than a third of borrowers surveyed reportedly struggled to repay their loans. In recent years, microcredit providers have shifted their focus from the goal of increasing the volume of available capital loans, to address the challenges of providing more affordable microfinance loans. Analyst David Roodman argues that in mature markets, the average interest rates and fees charged by microfinance institutions tend to decline over time.
Professor Dean Karlan from Yale University supporters also gave poor access to savings accounts.
See also
- Cooperative banking
- Count Me Login (charity)
- Crowdfunding
- People resources
- Flat rate (financial)
- Microcredit for water supply and sanitation
- Microgrant
- M-Pesa
- Company Project
- Solidarity borrowing
- Women's Development Bank
- Oikocredit
References
Bibliography
Source of the article : Wikipedia
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