microcredit

While the term "microcredit" gained prominence in the late 20th century, the practice of offering small loans to the poor has earlier roots. In the 18th century, Jonathan Swift, the Anglo-Irish satirist and Dean of St. Patrick's Cathedral in Dublin, established a charitable loan fund in 1727 with £500 of his own money.{{Cite journal |last=O'Connor |first=Ray |date=September 2022 |title=Institutionalising changing conceptualisations of charity in Ireland: charitable loan fund societies in Ireland, 1729–1823 |url=https://doi.org/10.3828/sh.2022.3 |journal=Studia Hibernica |volume=48 |issue=1 |pages=37–61 |doi=10.3828/sh.2022.3 |issn=0081-6477|hdl=10468/13663 |hdl-access=free }}{{cite web |author=Aidan Hollis |author2=Arthur Sweetman |date=March 1997 |title=Complementarity, Competition and Institutional Development: The Irish Loan Funds through Three Centuries |url=http://econwpa.repec.org/eps/eh/papers/9704/9704003.pdf |url-status=dead |archive-url=https://web.archive.org/web/20160304122326/http://econwpa.repec.org/eps/eh/papers/9704/9704003.pdf |archive-date=March 4, 2016 |access-date=30 January 2012}} This fund provided small, interest-free loans to impoverished tradespeople, requiring borrowers to have two neighbors act as guarantors, thereby ensuring community accountability. Swift's initiative inspired the creation of similar loan funds across Ireland, which, at their peak in the 19th century, provided credit to approximately 20% of Irish households. These early efforts laid the groundwork for later institutional models of microfinance.

Additional early examples of small-scale lending emerged throughout the 18th and 19th centuries. In 1746, John Wesley, the founder of Methodism, created a lending stock for the poor in England. His journal on 17/1/1748 records:

I made a public collection toward a lending stock for the poor. Our rule is, to lend only twenty shillings at once, which is repaid weekly within three months. I began this about a year and a half ago: thirty pounds sixteen shillings were then collected; and out of this, no less than two hundred and fifty-five persons have been relieved in eighteen months.

The institutionalization of microcredit in its contemporary form began in the 1970s, with Bangladesh serving as a central hub for early development. In 1983, Muhammad Yunus established the Grameen Bank, which is widely regarded as the first modern microcredit institution.{{Cite web |title=Grameen Bank – Facts |url=https://www.nobelprize.org/prizes/peace/2006/grameen/facts/?utm_source=chatgpt.com |access-date=2025-05-04 |website=NobelPrize.org |language=en-US}}{{cite book |last=Bateman |first=Milford |title=Why Doesn't Microfinance Work? |publisher=Zed Books |year=2010}} Yunus began the project in Jobra, using his own funds to deliver small loans at low-interest rates to the rural poor. The Grameen model introduced a group-based lending system aimed at reducing risk through peer accountability and promoting financial inclusion for low-income borrowers, particularly women.File:Utkal Grameen Bank.jpg.]]The Grameen Bank model inspired the creation of similar institutions globally, including BRAC in 1972 and ASA in 1978 in Bangladesh, and PRODEM in Bolivia, which later became the for-profit BancoSol in 1986.{{cite book |last=Drake |first=Deborah |title=The Commercialization of Microfinance |publisher=Kumarian |year=2002}} In Chile, BancoEstado Microempresas became a major provider of microcredit services.{{Cite book |last1=de la Torre |first1=Augusto |title=Innovative Experiences in Access to Finance: Market-Friendly Roles for the Visible Hand? |last2=Gozzi |first2=Juan Carlos |last3=Schmukler |first3=Sergio L. |year=2017 |pages=221–251 |chapter=Microfinance: BancoEstado's Experience in Chile}} Though the Grameen Bank was formed initially as a non-profit organization dependent upon government subsidies, it later became a corporate entity and was renamed Grameen II in 2002. Yunus was awarded the Nobel Peace Prize in 2006 for his work providing microcredit services to the poor.Nobel Prize.org:[https://www.nobelprize.org/nobel_prizes/peace/laureates/2006/ The Nobel Peace Prize 2006:Muhammad Yunus, Grameen Bank] {{Webarchive|url=https://web.archive.org/web/20180809102024/https://www.nobelprize.org/nobel_prizes/peace/laureates/2006/|date=August 9, 2018}}, retrieved on 13 February 2012

Microcredit organizations were initially created as alternatives to the "loan sharks" known to take advantage of clients. Indeed, many microlenders began as non-profit organizations and operated with government funds or private subsidies. By the 1980s, however, the "financial systems approach", influenced by neoliberalism and propagated by the Harvard Institute for International Development, became the dominant ideology among microcredit organizations. The neoliberal model of microcredit can also be referred to as the institutionist model, which promotes applying market solutions as a viable way to address social problems.{{Cite journal|last1=Bisen|first1=Arjun|last2=Dalton|first2=Bronwen|last3=Wilson|first3=Rachel|date=November 2012|title=The Social Construction of the Microfinance Industry: a comparison of donor and recipient perspectives|journal=Cosmopolitan Civil Societies|volume=4|issue=2|pages=62–83|doi=10.5130/ccs.v4i2.2715|doi-access=free}} The commercialization of microcredit officially began in 1984 with the formation of Unit Desa (BRI-UD) within the Bank Rakyat Indonesia. Unit Desa offered 'kupedes' microloans based on market interest rates.

Yunus has sharply criticized the shift in microcredit organizations from the Grameen Bank model as a non-profit bank to for-profit institutions:Muhammad Yunus, “Sacrificing Microcredit for Megaprofits” New York Times (15 January 2011) A.23.

I never dreamed that one day microcredit would give rise to its own breed of loan sharks... There are always people eager to take advantage of the vulnerable. But credit programs that seek to profit from the suffering of the poor should not be described as "microcredit," and investors who own such programs should not be allowed to benefit from the trust and respect that microcredit banks have rightly earned.

Though early microcredit institutions such as Jobra and Grameen Bank initially focused on individual lending, group lending approaches to microcredit were present as early as the 1970s through the use of solidarity circles.{{cite book|last=Armendariz|first=Beatriz|title=The Economics of Microfinance|year=2005|publisher=The MIT Press|location=Cambridge, Mass}} These groups provide one another with mutual encouragement, information, and assistance in times of need, though loans remain the responsibility of individuals.{{cite web |url=http://www.peopleweaver.com/projects/MicroCredit/meetings/solidarity_circle/ |title=Archived copy |access-date=2014-07-30 |url-status=dead |archive-url=https://web.archive.org/web/20090106185156/http://www.peopleweaver.com/projects/MicroCredit/meetings/solidarity_circle/ |archive-date=2009-01-06 }}{{cite news|last1=Minilening uitleg|title=Wat is een minilening ?|url=http://www.goedkopeminilening.nl/wat-is-een-minilening/|access-date=16 December 2016|work=Minilening|language=nl-NL|archive-date=December 21, 2016|archive-url=https://web.archive.org/web/20161221014212/http://www.goedkopeminilening.nl/wat-is-een-minilening/|url-status=live}} The use of group-lending was motivated by economics of scale, as the costs associated with monitoring loans and enforcing repayment are significantly lower when credit is distributed to groups rather than individuals. Often, the loan to one participant in group-lending depends upon the successful repayment from another member, thus transferring repayment responsibility off of microcredit institutions to loan recipients.

Microcredit is a tool that can possibly be helpful to reduce the feminization of poverty in developing countries. Lending to women has become an important principle in microcredit, with banks and NGOs such as BancoSol, WWB, and Pro Mujer catering to women exclusively. Pro Mujer also implemented a new strategy to combine microcredits with health-care services, since the health of their clients is crucial to the success of microcredits.Microfinance - Healthy Clients http://www.dandc.eu/en/article/pro-mujer-why-microfinance-institutions-should-offer-healthcare-services-too {{Webarchive|url=https://web.archive.org/web/20150714055512/http://www.dandc.eu/en/article/pro-mujer-why-microfinance-institutions-should-offer-healthcare-services-too |date=July 14, 2015 }} Though Grameen Bank initially tried to lend to both men and women at equal rates, women presently make up ninety-five percent of the bank's clients. Women continue to make up seventy-five percent of all microcredit recipients worldwide. Exclusive lending to women began in the 1980s when Grameen Bank found that women have higher repayment rates, and tend to accept smaller loans than men.

Grameen Bank in Bangladesh is the oldest and probably best-known microfinance institution in the world.{{Citation needed|date=May 2025}} Grameen Bank launched their US operations in New York in April 2008.University of Michigan, Urban and Regional Planning Economic Development Handbook: [http://www.umich.edu/~econdev/microcredit/ Microcredit strategies for assisting neighborhood businesses] {{Webarchive|url=https://web.archive.org/web/20080528052827/http://www.umich.edu/~econdev/microcredit/ |date=May 28, 2008 }}, 22 March 2005, retrieved on 13 February 2012 Bank of America has announced plans to award more than $3.7 million in grants to nonprofits to use in backing microloan programs.{{cite news|title=Bank of America Issues Grants for Microloans|url=https://www.wsj.com/articles/SB10001424052748703735804575535900346930486|newspaper=Wall Street Journal|access-date=30 January 2012|date=October 6, 2010|archive-date=November 7, 2017|archive-url=https://web.archive.org/web/20171107022248/https://www.wsj.com/articles/SB10001424052748703735804575535900346930486|url-status=live}} The Accion U.S. Network, the US subsidiary of the better-known Accion International, has provided over $450 million in microloans since 1991, with an over 90% repayment rate.{{cite web|url=http://www.accion.org/our-impact/us-network|title=U.S. Network|date=5 June 2014|access-date=2015-05-19|archive-url=https://web.archive.org/web/20180222224113/http://accion.org/our-impact/us-network|archive-date=2018-02-22|url-status=dead}} One research study of the Grameen model shows that poorer individuals are safer borrowers because they place more value on the relationship with the bank.{{Cite web |url=http://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/rwp10-11.pdf |title=Federal Reserve Bank of Kansas City, The Creditworthiness of the Poor: A Model of the Grameen Bank, April 2010 |access-date=September 25, 2012 |archive-date=October 19, 2012 |archive-url=https://web.archive.org/web/20121019030548/http://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/rwp10-11.pdf |url-status=live }} Even so, efforts to replicate Grameen-style solidarity lending in developed countries have generally not succeeded. For example, the Calmeadow Foundation tested an analogous peer-lending model in three locations in Canada during the 1990s. It concluded that a variety of factors—including difficulties in reaching the target market, the high risk profile of clients, their general distaste for the joint liability requirement, and high overhead costs—made solidarity lending unviable without subsidies.Cheryl Frankiewicz. "Calmeadow Metrofund: A Canadian Experiment in Sustainable Microfinance", Calmeadow Foundation, April 2001. Microcredits have also been introduced in Israel,[http://www.svivatomehet.org.il Svivatomehet.org.il] {{Webarchive|url=https://web.archive.org/web/20090318141509/http://www.svivatomehet.org.il/ |date=March 18, 2009 }} {{in lang|he}} Russia, Ukraine and other nations where micro-loans help small business entrepreneurs overcome cultural barriers in the mainstream business society. The Israel Free Loan Association (IFLA) has lent more than $100 million in the past two decades to Israeli citizens of all backgrounds.Israel Free Loan Associantion, History of IFLA, {{cite web |url=http://israelfreeloan.org.il/about/history |title=History of IFLA | Israel Free Loan Association |access-date=2013-07-26 |url-status=dead |archive-url=https://web.archive.org/web/20131004233544/http://israelfreeloan.org.il/about/history |archive-date=2013-10-04 }}, July 26, 2013

In India, the National Bank for Agriculture and Rural Development (NABARD) finances more than 500 banks that on-lend funds to self-help groups (SHGs). SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castes and tribes. Members save small amounts of money, as little as a few rupees a month in a group fund. Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. As SHGs prove capable of managing their funds well, they may borrow from a local bank to invest in small business or farm activities. Banks typically lend up to four rupees for every rupee in the group fund. In Asia borrowers generally pay interest rates that range from 30% to 70% without commission and fees.Nimal A. Fernando:[http://www.ruralfinanceandinvestment.org/sites/default/files/1153144135194_Microcredit_interest_rates_ADB.pdf Understanding and Dealing with High Interest Rate on Microcredit] {{Webarchive|url=https://web.archive.org/web/20170420045602/http://www.ruralfinanceandinvestment.org/sites/default/files/1153144135194_Microcredit_interest_rates_ADB.pdf |date=April 20, 2017 }}, Asian Development Bank, May 2006, p. 1 Nearly 1.4 million SHGs comprising approximately 20 million women now borrow from banks, which makes the Indian SHG-Bank Linkage model the largest microfinance program in the world. Similar programs are evolving in Africa and Southeast Asia with the assistance of organizations like IFAD, Opportunity International, Catholic Relief Services, Compassion International, CARE, APMAS, Oxfam, Tearfund and World Vision.

Microcredit initiatives in Pakistan have developed significantly over the past several decades, evolving from early cooperative lending models to large-scale institutional frameworks.{{Cite journal |last=Shah |first=Dr. Syed Abrar Hussain |last2=Langrial |first2=Prof. Dr Altaf Hussain |last3=Mahmood |first3=Dr. Hafiz Muhammad Hassan |title=Micro Financing in Pakistan: A Historical Study |url=https://www.researchgate.net/publication/387541304_Micro_Financing_in_Pakistan_A_Historical_Study_Micro_Financing_in_Pakistan_A_Historical_Study |journal=Quarterly Research Journal “Al-Marsoos” |volume=2 |issue=4 |via=Research Gate}} The first major microcredit initiative in the region was the Comilla Model, introduced in the 1950s by Akhtar Hameed Khan in East Pakistan (now Bangladesh). The Comilla Model was designed to address rural poverty through group-based lending and village cooperatives, aiming to empower small farmers by providing access to credit without traditional collateral. While the model initially showed promise, it faced challenges due to bureaucratic interference, mismanagement, and power imbalances within borrower groups, ultimately limiting its long-term impact.

Following the separation of Bangladesh in 1971, microcredit efforts in Pakistan evolved independently, influenced by both global microfinance trends and local economic conditions. In 2001, the establishment of Akhuwat marked a significant shift in microcredit philosophy within Pakistan.{{Cite news |date=2024-09-22 |title=Home - Akhuwat.com.pk |url=http://www.akhuwat.com.pk |archive-url=http://web.archive.org/web/20250328215835/https://akhuwat.com.pk/ |archive-date=2025-03-28 |access-date=2025-05-08 |work=Akhuwat.com.pk - One Stop Solution for Akhuwat Loans |language=en-US}} Founded by Dr. Amjad Saqib, Akhuwat operates on a unique interest-free lending model funded entirely by donations and community support. The organization disburses loans to low-income borrowers through a network of mosques and community centers, promoting principles of social justice and financial inclusion. Akhuwat has provided over PKR 200 billion in interest-free loans to more than 4.5 million families as of 2024, positioning itself as one of the largest microfinance institutions in the country.{{Cite journal |last=Bashir |first=Mohsin |last2=Saleem |first2=Ashar |last3=Ahmed |first3=Ferhana |date=2019-03-01 |title=Akhuwat: Measuring Success for a Non-profit Organization |url=https://journals.sagepub.com/doi/10.1177/0972820119825973 |journal=Asian Journal of Management Cases |language=EN |volume=16 |issue=1 |pages=100–112 |doi=10.1177/0972820119825973 |issn=0972-8201}}

Akhuwat’s success has been attributed to its emphasis on community engagement and its rejection of interest-based lending, aligning its model with both Islamic finance principles and conventional microcredit structures. Borrowers are required to repay only the principal amount, fostering a culture of mutual support and accountability. Akhuwat also offers social services such as educational scholarships, housing loans, and small business training to further enhance economic stability among beneficiaries.

Microcredit initiatives in Pakistan have developed significantly over the past several decades, transitioning from cooperative lending models to formalized institutional frameworks. While Akhuwat is a notable example of interest-free microfinance, other organizations have also contributed to the sector.

Kashf Foundation, established in 1996, was one of the first microfinance institutions in Pakistan to focus on women’s economic empowerment through microloans. The organization has expanded its services to include microinsurance and financial literacy programs.{{Cite web |title=Kashf Foundation |url=https://kashf.org/ |access-date=2025-05-13 |website=kashf.org}}

Khushhali Microfinance Bank (KMBL), founded in 2000 as part of the Microfinance Sector Development Program, provides microloans, agricultural credit, and digital banking services. KMBL operates as a for-profit institution and focuses on small business lending.{{Cite web |title={{!}} Khushhali Microfinance Bank |url=https://khushhalibank.com.pk/ |access-date=2025-05-13 |website=khushhalibank.com.pk}}

The National Rural Support Programme (NRSP), launched in 1991, is the largest rural development initiative in Pakistan. NRSP offers microloans alongside agricultural training and infrastructure development for low-income households.{{Cite web |title=National Rural Support Programme |url=https://nrsp.org.pk/ |access-date=2025-05-13 |website=nrsp.org.pk}}

The Pakistan Poverty Alleviation Fund (PPAF), established in 2000, functions as an apex institution that allocates funds to partner organizations involved in poverty reduction through microcredit, asset transfers, and community-based projects.{{Cite web |title=Home {{!}} Pakistan Poverty Alleviation Fund |url=https://www.ppaf.org.pk/ |access-date=2025-05-13 |website=www.ppaf.org.pk}}

Despite the expansion of microcredit in Pakistan, challenges such as operational costs, outreach in remote areas, and regulatory constraints remain prevalent.

In the United States, microcredit has generally been defined as loans of less than $50,000 to people—mostly entrepreneurs—who cannot, for various reasons, borrow from a bank. Most nonprofit microlenders include services like financial literacy training and business plan consultations, which contribute to the expense of providing such loans but also, those groups say, to the success of their borrowers.{{cite news|url=https://www.nytimes.com/2013/10/29/business/microcredit-for-americans.html|title=Microcredit for Americans|first=Shaila|last=Dewan|website=The New York Times|date=October 29, 2013|access-date=May 10, 2018|archive-date=May 11, 2018|archive-url=https://web.archive.org/web/20180511015012/https://www.nytimes.com/2013/10/29/business/microcredit-for-americans.html|url-status=live}} One such organization in the United States, the Accion U.S. Network is a nonprofit microfinance organization headquartered in New York, New York. It is the largest and only nationwide nonprofit microfinance network in the US. The Accion U.S. Network is part of Accion International, a US-based nonprofit organization operating globally, with the mission of giving people the financial tools they need to create or grow healthy businesses. The domestic Accion programs started in Brooklyn, New York, and grew from there to become the first nationwide network microlender.Accion U.S. Network{{Circular reference|date=May 2018}} US microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute's study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group's reliance on public assistance dropped by more than 60%.{{cite journal |url=https://hbr.org/1999/11/can-microcredit-work-in-the-united-states |title=Can Microcredit Work in the United States? |date=1 November 1999 |journal=Harvard Business Review |last1=Bhatt |first1=Nitin |last2=Painter |first2=Gary |last3=Tang |first3=Shui-Yan |access-date=March 7, 2018 |archive-date=March 7, 2018 |archive-url=https://web.archive.org/web/20180307151030/https://hbr.org/1999/11/can-microcredit-work-in-the-united-states |url-status=live }} Several corporate sponsors including Citi Foundation and Capital One launched Grameen America in New York. Since then the financial outfit—not bank—has been serving the poor, mainly women, throughout four of the city's five boroughs (Bronx, Brooklyn, Manhattan, and Queens) as well as Omaha, Nebraska and Indianapolis, Indiana. In four years, Grameen America has facilitated loans to over 9,000 borrowers valued over $35 million. It has had, as Grameen CEO Stephen Vogel notes, "a 99 percent repayment rate".{{cite web|url=https://www.forbes.com/sites/elmirabayrasli/2012/03/26/microfinance-in-america/#1714c90846e8|title=Microfinance in America?|first=Elmira|last=Bayrasli|website=forbes.com|access-date=May 10, 2018|archive-date=May 11, 2018|archive-url=https://web.archive.org/web/20180511014355/https://www.forbes.com/sites/elmirabayrasli/2012/03/26/microfinance-in-america/#1714c90846e8|url-status=live}}

The principles of microcredit have also been applied in attempting to address several non-poverty-related issues. Among these, multiple Internet-based organizations have developed platforms that facilitate a modified form of peer-to-peer lending where a loan is not made in the form of a single, direct loan, but as the aggregation of a number of smaller loans—often at a negligible interest rate.

Examples of platforms that connect lenders to micro-entrepreneurs via Internet are Kiva, Zidisha, and the Microloan Foundation. Another internet-based microlender, United Prosperity (now defunct), uses a variation on the usual microlending model; with United Prosperity the micro-lender provides a guarantee to a local bank which then lends back double that amount to the micro-entrepreneur. United Prosperity claims this provides both greater leverage and allows the micro-entrepreneur to develop a credit history with their local bank for future loans.{{cite web |date=27 August 2009 |title=Nonprofit Uses Social Guarantors to Support Struggling Entrepreneurs |url=http://www.thedailytell.com/2009/08/nonprofit-uses-social-guarantors-to-support-struggling-entrepreneurs/ |access-date=25 October 2009 |website=The Daily Tell |archive-date=December 4, 2022 |archive-url=https://web.archive.org/web/20221204044619/https://www.thedailytell.com/2009/08/nonprofit-uses-social-guarantors-to-support-struggling-entrepreneurs/ |url-status=live }}{{cite web |date=22 June 2009 |title=World's first person-to-person loan guarantee website enters the field |url=http://www.alliancemagazine.org/node/2288 |access-date=28 October 2009 |website=@alliance |archive-date=July 25, 2009 |archive-url=https://web.archive.org/web/20090725091425/http://www.alliancemagazine.org/node/2288 |url-status=live }} In 2009, the US-based nonprofit Zidisha became the first peer-to-peer microlending platform to link lenders and borrowers directly across international borders without local intermediaries.[http://www.microfinancefocus.com/news/2010/02/07/zidisha-set-to-expand-in-peer-to-peer-microfinance-julia-kurnia/ "Zidisha Set to "Expand" in Peer-to-Peer Microfinance", Microfinance Focus, Feb 2010] {{webarchive|url=https://web.archive.org/web/20100228000309/http://www.microfinancefocus.com/news/2010/02/07/zidisha-set-to-expand-in-peer-to-peer-microfinance-julia-kurnia |date=2010-02-28 }} From 2008 through 2014, Vittana allowed peer-to-peer lending for student loans in developing countries.Rao. L. (2010). Vittana Applies The Kiva Model To Help Finance Education In Developing Countries. Retrieved March 9, 2011, from https://techcrunch.com/2010/03/15/vittana-applies-the-kiva-model-to-help-finance-education-in-developing-countries/ {{Webarchive|url=https://web.archive.org/web/20161105075851/https://techcrunch.com/2010/03/15/vittana-applies-the-kiva-model-to-help-finance-education-in-developing-countries/ |date=November 5, 2016 }}

{{Further|Impact of microcredit}}

The impact of microcredit is a subject of some controversy. Proponents state that it reduces poverty through higher employment and higher incomes. This is expected to lead to improved nutrition and improved education of the borrowers' children. Some argue that microcredit empowers women. In the US, UK and Canada, it is argued that microcredit helps recipients to graduate from welfare programs.Nitin Bhatt, Gary Painter, and Shui-Yan Tang, 1999. “Can Microcredit Work in the United States?”, Harvard Business Review, November–December 1999 Issue. Retrieved March 06, 2018, from https://hbr.org/1999/11/can-microcredit-work-in-the-united-states {{Webarchive|url=https://web.archive.org/web/20180307151030/https://hbr.org/1999/11/can-microcredit-work-in-the-united-states |date=March 7, 2018 }} - "U.S. microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute’s study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group’s reliance on public assistance dropped by more than 60%."

Critics say that microcredit, if not carefully directed, may not increase incomes, and may drive poor households into a debt trap. They add that the money from loans may be used for durable consumer goods or consumption instead of being used for productive investments, that it may fail to empower women, and that it may not improve health or education.Tonelli M. and C. Dalglish, 2012. “Micro-Credit is Necessary but Not Sufficient for Entrepreneurs in Desperate Poverty”, FSR Forum, Vo.14, Issue 4 (p.16-21). ISSN 1389-0913

The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps. Some studies suggest that microcredit has not generally empowered women. Microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued. Microcredit is just one factor influencing the success of a small businesses, whose success is influenced to a much larger extent by how much an economy or a particular market grows.{{cite web|url=https://www.eurekalert.org/pub_releases/2015-01/ifpa-mdl012115.php|title=Microcredit doesn't live up to promise of transforming lives of the poor, 6 studies show|website=EurekAlert!|access-date=February 2, 2017|archive-date=February 2, 2017|archive-url=https://web.archive.org/web/20170202234119/https://www.eurekalert.org/pub_releases/2015-01/ifpa-mdl012115.php|url-status=live}}

Unintended consequences of microfinance include informal intermediation: some entrepreneurial borrowers may become informal intermediaries between microfinance initiatives and poorer micro-entrepreneurs. Those who more easily qualify for microfinance may split loans into smaller credit to even poorer borrowers. Informal intermediation ranges from casual intermediaries at the good or benign end of the spectrum to loan sharks at the professional and sometimes criminal end of the spectrum.{{cite journal|last1=Arp|first1=Frithjof|last2=Ardisa|first2=Alvin|last3=Ardisa|first3=Alviani|date=2017|title=Microfinance for poverty alleviation: Do transnational initiatives overlook fundamental questions of competition and intermediation?|doi=10.18356/10695889-en|url=https://www.researchgate.net/publication/320100413|journal=Transnational Corporations|volume=24|issue=3|pages=103–117|publisher=United Nations Conference on Trade and Development|s2cid=73558727|id=UNCTAD/DIAE/IA/2017D4A8|hdl=10419/170696|hdl-access=free|access-date=September 30, 2017|archive-date=May 4, 2020|archive-url=https://web.archive.org/web/20200504204513/https://www.researchgate.net/publication/320100413_Microfinance_for_poverty_alleviation_Do_transnational_initiatives_overlook_fundamental_questions_of_competition_and_intermediation|url-status=live}}

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Many scholars and practitioners suggest an integrated package of services ("a credit-plus" approach) rather than just providing credits. When access to credit is combined with savings facilities, non-productive loan facilities, insurance, enterprise development (production-oriented and management training, marketing support) and welfare-related services (literacy and health services, gender and social awareness training), the adverse effects discussed above can be diminished.{{cite journal|last=Holvoet|first=Nathalie|title=The Impact of Microfinance on Decision-Making Agency: Evidence from South India}} Some argue that more experienced entrepreneurs who are getting loans should be qualified for bigger loans to ensure the success of the program.{{cite journal|last=Goetz|author2=Gupta|journal=World Development|year=1996|volume=24|title=Who takes the credit? Gender, Power, Control over loan use in Rural credit program in Bangladesh|url=http://www.citt.ufl.edu/portfolio/genders/Readings/ReadingsW10/Whotakesthecredit.pdf|issue=1|doi=10.1016/0305-750x(95)00124-u|pages=45–63}}{{dead link|date=September 2017 |bot=InternetArchiveBot |fix-attempted=yes }}

One of the principal challenges of microcredit is providing small loans at an affordable cost. The global average interest and fee rate is estimated at 37%, with rates reaching as high as 70% in some markets.{{cite news|last=McFarquhar|first=Neil|title=Banks Making Big Profits From Tiny Loans|url=https://www.nytimes.com/2010/04/14/world/14microfinance.html?pagewanted=all&_r=0|newspaper=New York Times|date=April 13, 2010|access-date=February 25, 2017|archive-date=June 12, 2017|archive-url=https://web.archive.org/web/20170612080203/http://www.nytimes.com/2010/04/14/world/14microfinance.html?pagewanted=all&_r=0|url-status=live}} The reason for the high interest rates is not primarily cost of capital. Indeed, the local microfinance organizations that receive zero-interest loan capital from the online microlending platform Kiva charge average interest and fee rates of 35.21%.{{cite web|url=http://www.kiva.org/about/app.php?page=help&action=InterestRateComparison#AverageInterestRateBorrowerPaysToKivaFieldPartner|title=Kiva Help - Interest Rate Comparison|publisher=Kiva.org|access-date=October 10, 2009|url-status=dead|archive-url=https://web.archive.org/web/20090803220548/http://www.kiva.org/about/app.php?page=help&action=InterestRateComparison#AverageInterestRateBorrowerPaysToKivaFieldPartner|archive-date=August 3, 2009}} Rather, the principal reason for the high cost of microcredit loans is the high transaction cost of traditional microfinance operations relative to loan size.{{cite web|url=http://www.kiva.org/about/microfinance#interestRatesAreHigh|title=How Kiva works - Kiva|access-date=July 23, 2012|archive-date=July 26, 2012|archive-url=https://web.archive.org/web/20120726074045/http://www.kiva.org/about/microfinance#interestRatesAreHigh|url-status=live}} Microcredit practitioners have long argued that such high interest rates are simply unavoidable. The result is that the traditional approach to microcredit has made only limited progress in resolving the problem it purports to address: that the world's poorest people pay the world's highest cost for small business growth capital. The high costs of traditional microcredit loans limit their effectiveness as a poverty-fighting tool. Borrowers who do not manage to earn a rate of return at least equal to the interest rate may actually end up poorer as a result of accepting the loans. According to a recent survey of microfinance borrowers in Ghana published by the Center for Financial Inclusion, more than one-third of borrowers surveyed reported struggling to repay their loans.{{Cite web |url=http://centerforfinancialinclusionblog.files.wordpress.com/2011/11/111108_cfi_over-indebtedness-in-ghana_jessica-schicks_en_final.pdf |title=Archived copy |access-date=July 23, 2012 |archive-date=December 18, 2011 |archive-url=https://web.archive.org/web/20111218023933/http://centerforfinancialinclusionblog.files.wordpress.com/2011/11/111108_cfi_over-indebtedness-in-ghana_jessica-schicks_en_final.pdf |url-status=dead }} In recent years, microcredit providers have shifted their focus from the objective of increasing the volume of lending capital available, to address the challenge of providing microfinance loans more affordably. Analyst David Roodman contends that in mature markets, the average interest and fee rates charged by microfinance institutions tend to fall over time.Roodman, David. "Due Diligence: An Impertinent Inquiry Into Microfinance." Center for Global Development, 2011.

• Cooperative banking
• Count Me In (charity)
• Crowdfunding
• Crowd sourcing
• Flat rate (finance)
• Microcredit for water supply and sanitation
• Microgrant
• M-Pesa
• Project Enterprise
• Solidarity lending
• The Women's Development Bank
• Oikocredit

{{Reflist}}

• Adams, Dale, Doug Graham and J.D. Von Pischke (eds.). Undermining Rural Development with Cheap Credit. Westview Press, Boulder, Colorado, 1984.
• Bateman, Milford. 'Why Doesn't Microfinance Work? The Destructive Rise of Local Neoliberalism'. Zed Books, London, 2010.
• Drake, Deborah, and Elizabeth Rhyne (eds.). The Commercialization of Microfinance: Balancing Business and Development. Kumarian Press, 2002.
• Rhyne, Elizabeth. Mainstreaming Microfinance: How Lending to the Poor Began, Grew and Came of Age in Bolivia. Kumarian Press, 2001.
• Fuglesang, Andreas and Dale Chandler. Participation as Process – Process as Growth – What We can Learn from the Grameen Bank. Grameen Trust, Dhaka, 1993.
• Gibbons, David. The Grameen Reader. Grameen Bank, Dhaka, 1992.
• Harper, Malcolm and Shailendra Vyakarnam. Rural Enterprise: Case Studies from Developing Countries. ITDG Publishing, 1988.
• Hulme, David and Paul Mosley. Finance Against Poverty. Routledge, London, 1996.
• Johnson, Susan and Ben Rogaly. Microfinance and Poverty Reduction. Oxfam, Oxford UK, 1997.
• Kadaras, James & Elizabeth Rhyne. Characteristics of equity investment in microfinance. Accion International, 2004.
• Khandker, Shahidur R. Fighting Poverty with Microcredit. Bangladesh edition, The University Press Ltd, Dhaka, 1999.
• Ledgerwood, Joanna. Microfinance Handbook. Washington, D.C., World Bank, 1998.
• Rutherford, Stuart. ASA: The Biography of an NGO, Empowerment and Credit in Rural Bangladesh. ASA, Dhaka, 1995.
• Small Enterprise Development. Intermediate Technology Publications, London.
• Todd, Helen Women at the Center: Grameen Borrowers After One Decade. University Press Ltd, Dhaka, 1996.
• Wood, Geoff D. & I. Sharif (eds.). Who Needs Credit? Poverty and Finance in Bangladesh. University Press Ltd., Dhaka, 1997.
• Yunus Muhammad, Moingeon Bertrand & Laurence Lehmann-Ortega, "[https://web.archive.org/web/20230921174319/http://www.loancalculatorcanada.ca/Article-LRP-Yunus-Moingeon-Lehmann-Ortega-definitif.pdf Building Social Business Models: Lessons from the Grameen Experience", April-June, vol 43, n° 2-3, Long Range Planning, 2010, p. 308-325]"
• Tonelli M. and C. Dalglish, 2012. "Micro-Credit is Necessary but Not Sufficient for Entrepreneurs in Desperate Poverty", FSR Forum, Vo.14, Issue 4 (p. 16-21). ISSN 1389-0913
• Yunus, Muhammad. Banker to the Poor: Micro-Lending and the Battle Against World Poverty. Public Affairs, 2003.
• Padmanabahn, K.P., Rural Credit, Intermediate Tech. Publ. Ltd., London 1988.
• Germidis D. et al.,Financial Systems and Development: what role for the formal and informal financial sectors?, OECD, Paris 1991.
• Robinson, Marguerite S., The microfinance revolution, The World Bank, Washington D.C., 2001.
• Mauri, Arnaldo, (1995): A new approach to institutional lending and loan administration in rural areas of LDCs, International Review of Economics, ISSN 1865-1704, Vol. 45, no. 4, pp. 707–716.
• {{cite journal | last1 = Goetz | first1 = A.-M. | last2 = Sengupta | first2 = R. | year = 1996 | title = Who Takes the Credit? Gender, Power and Control over Loan Use in Rural Credit Programmes in Bangladesh | journal = World Development | volume = 24 | pages = 45–63 | doi=10.1016/0305-750x(95)00124-u}}
• Johnson, S. 1997. Gender and Micro-finance: guidelines for best practice. Action Aid-UK.
• Kabeer, N. 1998. 'Money Can't Buy Me Love'? Re-evaluating Gender, Credit and Empowerment in Rural Bangladesh. IDS Discussion Paper 363.
• Mayoux, L. 1998a. Women's Empowerment and Micro-finance programmes: Approaches, Evidence and Ways Forward. The Open University Working Paper No 41.
• {{cite journal | last1 = Rahman | first1 = A | year = 1999 | title = Micro-credit Initiatives for Equitable and Sustainable Development: Who Pays? | journal = World Development | volume = 27 | issue = 1| pages = 67–82 | doi=10.1016/s0305-750x(98)00105-3}}
• CHESTON, S. and KUHN, L. (2002). Empowering Women through Microfinance. Pathways Out of Poverty: Innovations in Microfinance for the Poorest Families.
• Harper, A. ( 1995). Providing women in Baltistan with access to loans – potential and problems. Lahore, AKRSP Pakistan.
• Mutalima, I. K., 2006, [http://webarchive.nationalarchives.gov.uk/20100114105356/http%3A//www.microcreditsummit.org/papers/Workshops/28_Mutalima.pdf Microfinance and Gender Equality: Are We Getting There?]: Micro Credit Summit, Halifa, Royal Tropical Institute and Oxfam Novib.

• [http://www.povertyactionlab.org/publication/latest-findings-randomized-evaluations-microfinance Latest Findings from Randomized Evaluations of Microfinance] Access to Finance Forum by CGAP and Its Partners No. 2, December 2011
• [https://web.archive.org/web/20070716100213/http://www.usaid.gov/locations/sub-saharan_africa/sudan/ss_microfinance.html Building a Microfinance Institution from Scratch] Institution's objective is to offer financial services on a self-sustaining yet efficient basis to microentrepreneurs.
• [https://scholarsarchive.byu.edu/esr/ Journal of Microfinance], a forum for practitioners in microfinance and microenterprise development to exchange information and ideas
• [https://web.archive.org/web/20060430010701/http://www.tufts.edu/microfinancefund/ Omidyar-Tufts Microfinance Fund], a partnership between Pierre Omidyar and Tufts University.
• [https://web.archive.org/web/20070815104804/http://thehague.usembassy.gov/mrs._arnall_microfinance "Microfinance in the U.S."] Helping ensure egalitarian access to needed financial services.
• [https://web.archive.org/web/20070812061759/http://www.csa.com/discoveryguides/microfinance/review.php The Promise of Microfinance for Poverty Relief in the Developing World]
• [http://www.mra.gov.bd/ Microcredit Regulatory Authority, MRA] The central body to monitor and supervise microfinance operation of NGOs of Bangladesh
• [http://www.brac.net/ Alleviation and poverty and empowerment of the poor, BRAC] Bangladesh
• [https://web.archive.org/web/20091231170553/http://www.credit-coops.ru/ The European Union Project "Credit Cooperatives – Russian Federation"] official web site

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