Microcredit
Definition
"Microlending is a decentralized activity where the poor manage their own credit risk by saving and borrowing in circles of five people each, who all guarantee each other’s loans. This decentralization of the credit risk not only makes the microlending work, but with real and regular loan repayments, it also teaches the borrowers the responsibility of tight business and financial management." (http://beckstrom.com/kaputei.html)
Description
Microcredit:
"In 1974 Bangladeshi Economics Professor Muhammad Yunus observed a poor countrywoman and calculated that, if she could raise less than thirty cents, she might escape the poverty imposed by middle-men who manipulated the prices at which she bought her raw material and sold her finished furniture. Bemoaning the failure of his American economics Ph.D. to highlight this travesty Yunus founded the `Grameen' (meaning `Community') Bank. But how could it make these loans and get them repaid when its borrowers had no collateral to put up and Bangladeshi culture was shot through with corruption and debt evasion?
The secret was lending to individuals, but doing so within groups of people - particularly women - all of whom went co-guarantor. People might walk away from a loan to themselves, but these `solidarity groups' helped transfer skill and share risk as well as radiating both the financial pain and the social shame of default. These groups, the desire to increase borrowing as businesses grow, and the `training' that borrowers get enable the Grameen Bank inculcate a culture of trust and repayment and a default rate of around one percent.
Group and self-interest coalesce a deft and miraculous new combination." (http://troppoarmadillo.ubersportingpundit.com/archives/009157.html)
More Information
- Microcredit lending models
- Here's a critique of the microfinance movement and the bottom of the pyramid movement by Paul Hawken, author of The Ecology of Commerce and Natural Capitalism, athttp://valuenewsnetwork.com/article.cfm?id=12
- Networks and networking in microfinance
- Spotlight on the Grameen Bank
See also: Social Lending