Microcredit (sometimes referred to as microfinance) is a term used to describe a range of financial services that cater to the needs of people - often the poor and marginalised - who are alienated from traditional lending institutions like banks.

Microcredit usually focuses upon small loans, small repayments and activities which immediately generate income from skills already possessed by the borrower. Since it was first pioneered by the Grameen Bank in Bangladesh in the 1970s, micro-credit has enabled millions of people in developing countries (particularly women) to become self-reliant.

The UN General Assembly designated 2005 as the International Year of Microcredit , while in 2006, Grameen Bank founder Professor Muhammad Yunus and the Grameen Bank were awarded the Nobel Peace Prize “for their efforts to create economic and social development from below”. See the Nobel Prize Committee’s web site for further information.

For further information on microcredit, click here to review an excerpt from David Bornstein’s ‘The Price of a Dream: The Story of the Grameen Bank ‘. (Reproduced with permission of The Grameen Foundation of Australia.)

What are the benefits of microcredit?

Successful microcredit initiatives serve to:

• Give the poor access to much-needed financial services (e.g. small loans, insurance, savings plans), empowering participants to gain more control over their lives and earning capacities.This promotes sustainable livelihoods and reduces the vulnerability of poor households through asset creation and the generation of immediate income.
• Forge community alliances, particularly amongst women, of personal and professional support, e.g. ’self-help’ groups which mobilize savings and become forums for discussing both business and other social issues, such as health, education and human rights.
• Encourage savings, to establish a ’safety net’ for the future. This benefits households, families and communities via improvements in nutrition and health, education and economic resilience.