Microcredit

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Microcredit

A form of lending that originated in the 1970s with small loans made to very small enterprises in Bangladesh, called micro-enterprises, with the intention of alleviating high poverty levels. Microfinance institutions (MFIs) issue micro-loans that have higher-than-normal interest rates meant to cover the high costs associated with issuing small loans. Given that the purpose of microcredit is to be a poverty relief mechanism, individuals with low credit scores who lack capital and steady employment are then able to receive loans to develop their enterprises. See: Microfinance

Microcredit

The practice of making loans to extremely poor persons to help them rise from poverty through entrepreneurship. That is, one may make a loan of, say, $25 which gives someone the start-up capital necessary to make something small to sell. Microcredit loans are usually either interest-free or carry interest that does not compound. Additionally they offer flexible repayment plans; generally one is asked to pay anything one can so long as one pays something. Microcredit is most common in the developing world; it started in Bangladesh in the 1970s. See also: Grameen Bank, Mohammed Yunus.
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The number borrowers taking out cash loans from the micro-lenders is growing at an unprecedented rate, according to the lending companies and the government.
Some other Mexican for-profit micro-lenders charge even higher rates.
Poverty in the developing world seemed ineradicable until micro-lenders saw millions of low-income, destitute women as potential entrepreneurs.
Additionally, the stimulus package will provide $100 million to more than 1,000 Community Development Financial Institutions across the country which, in turn, finance a battery of micro-lenders. The $6 million commitment to micro-loan programs is very significant, says Gina Harman, president and CEO of ACCION USA, one of the nation's largest micro-lenders, whose clients range from home-based ventures to metropolitan restaurants.
This heavy-handed and expensive approach has forced micro-lenders to go dark and enter a time-consuming registration process, just when they are most needed in the economy.
Marketing gateway* Tamweelcom, one of the Kingdom's major micro-lenders, held an event on Saturday to launch an educational grant program and a newly developed "marketing gateway".
The telecommunication firms have, however, argued that tighter regulation will stifle innovation, roll back the gains made in deepening financial inclusivity as well deny customers the efficiency associated with mobile money.The National Assembly's Information, Communications and Technology (ICT) committee chaired by Marakwet West MP William Kisang early this month directed the CBK to publish regulations that will see interest rates charged by more than 500 unregulated digital micro-lenders controlled by the banking sector watchdog.
Speaking in Hluhluwe where he and his team conducted inspection, Zikalala said he was aware of many unscrupulous micro-lenders who illegally confiscated identity documents from their clients.
"The rise in household credit largely reflected strong growth in installment credit and overdraft loans, furthermore loan disbursements by micro-lenders for 2013 have increased to N$2.2 billion, up with 41% from 2012, thus these state of affairs regarding debt is worrying to Namfisa." According to the Bank of Namibia, annual inflation has risen from 4.9% in December 2013 to 6.1% in May 2014, mainly due to increases in food and transport prices.
The event is an opportunity for business owners and others to talk to community lenders, micro-lenders, business advisers and/or technical assistance organizations to briefly discuss specific needs.
Group lending: Some micro-lenders prefer a group lending strategy, where loans are given to small close-knit groups of people who 'cross guarantee' other members of the group.
On August 3 the apex bank modified the margin cap for MFIs from a flat 12 percent to 10 percent for large lenders, and 12 percent for other micro-lenders.