Microcredit
Introduction
Microcredit is defined as lending a small loan portion to individuals in non-developed countries that have unstable employment, no credit and may have little or no collateral. The loan is mainly used for individuals to expand or start a small business, help individuals out of poverty, create more employment opportunities and to empower women to be more independent. Microcredit is a particular area in a much broader category called microfinance. Microfinance is many different financial services that are offered to the poor, with emphasis placed on saving. Most microcredit lenders in the past consisted of non-profit organization, but now many lenders are independently owned banks.
Difference between Microcredit and Traditional
Microcredit is different from traditional lending because it is targeted towards those that are poor and under-privileged. Microcredit institutions do not ask for collateral, because this is the one thing that stands in the way between poor borrowers and institutions. Microcredit institutions are particularly in favour of lending to women because women culturally lack power and decision making capabilities without money. Most financial institutions will reach out to the people as opposed to the people coming to them; it is set up in a way that makes it less intimidating and friendlier. The repayment process is also fairly set up in a way that loan repayments are in small portions and can be repaid over an extended period. Though interest is charged on these loans, borrowers have enough time to repay the loan.
Specific Impacts
Three countries that have a significant amount of microcredit borrowers due to poverty are Ghana, Pakistan and Bangladesh. In Ghana, specifically Nkoranza, there is a high poverty rate due to low productivity and poor markets for agriculture. This is more evident for food crop farmers which are the main borrowers of micro credit in Nkoranza. There are three sectors of microfinance in Ghana
Microcredit is defined as lending a small loan portion to individuals in non-developed countries that have unstable employment, no credit and may have little or no collateral. The loan is mainly used for individuals to expand or start a small business, help individuals out of poverty, create more employment opportunities and to empower women to be more independent. Microcredit is a particular area in a much broader category called microfinance. Microfinance is many different financial services that are offered to the poor, with emphasis placed on saving. Most microcredit lenders in the past consisted of non-profit organization, but now many lenders are independently owned banks.
Difference between Microcredit and Traditional
Microcredit is different from traditional lending because it is targeted towards those that are poor and under-privileged. Microcredit institutions do not ask for collateral, because this is the one thing that stands in the way between poor borrowers and institutions. Microcredit institutions are particularly in favour of lending to women because women culturally lack power and decision making capabilities without money. Most financial institutions will reach out to the people as opposed to the people coming to them; it is set up in a way that makes it less intimidating and friendlier. The repayment process is also fairly set up in a way that loan repayments are in small portions and can be repaid over an extended period. Though interest is charged on these loans, borrowers have enough time to repay the loan.
Specific Impacts
Three countries that have a significant amount of microcredit borrowers due to poverty are Ghana, Pakistan and Bangladesh. In Ghana, specifically Nkoranza, there is a high poverty rate due to low productivity and poor markets for agriculture. This is more evident for food crop farmers which are the main borrowers of micro credit in Nkoranza. There are three sectors of microfinance in Ghana