What is Microcredit

A small introduction to a huge movement

Microcredit is the extension of small loans and other financial services (such as savings accounts) to the very poor. This allows them to pursue entrepreneurial projects that generate extra income, thus helping them to better provide for themselves and their families.

La Maman Mole Motuke lived in a wrecked car in a suburb of Kinshasa, Zaire with her four children. If she could find something to eat, she would feed two of her children; the next time she found something to eat, her other two children would eat. When organizers from a microcredit lending institution interviewed her, she said that she knew how to make chikwangue (manioc paste), and she only needed a few dollars to start production. After six months of training in marketing and production techniques, Maman Motuke got her first loan of US $100, which she used to buy the production materials necessary to start her own business.

Today, Maman Motuke and her family no longer live in a broken-down car: they now rent a house with two bedrooms and a living room. Her four children go to school consistently, eat regularly, and dress well. She is currently saving to buy some land in a suburb farther outside of the city and hopes one day to build a house there.

Why give loans to very poor people for self-employment endeavors?

In many developing countries, the self-employed comprise more than 50 percent of the labor force. Access to small amounts of credit at  reasonable interest rates – instead of the exorbitant ones often charged by traditional moneylenders – allows poor people to move from initial, perhaps tiny, income-generating activities to small microenterprises. In most cases, microcredit programs offer a combination of services and resources to their clients including savings facilities, training, networking, and peer support.

In this way, microcredit allows families to work to end their own poverty – with dignity. Microcredit programs around the world, using a variety of models, have shown that poor people achieve strong repayment records – often higher than those of conventional borrowers. Repayment rates are high because, through a system of peer support and pressure used in many microcredit models, borrowers are responsible for each other’s success and ensure that every member of their group is able to pay back her loans.

Leave a Comment

Your email address will not be published. Required fields are marked *