So, what is "microcredit" ??

Hari Srinivas
Coordinator, Virtual Library on Microcredit

The Microcredit Summit (2-4 February 1997), and the activities that went into organizing the event, adopted a definition for microcredit:

Microcredit (mI-[*]Kro'kre-dit); noun; programmes extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families. - Microcredit Summit
Definitions differ, of course, from country to country. Some of the defining criteria used include-
  • size - loans are micro, or very small in size
  • target users - microenterpreneurs and low-income households
  • utilization - the use of funds - for income generation, and enterprise development, but also for community use (health/education) etc.
  • terms and conditions - most terms and conditions for microcredit loans are flexible and easy to understand, and suited to the local conditions of the community.
  • Microcredit is the extension of small loans to enterpreneurs too poor to qualify for traditional bank loans. It has proven an effective and popular measure in the ongoing struggle against poverty, enabling those without access to lending institutions to borrow at bank rates, and start small business.

    The key implications of microcredit is in its name itself: 'micro'. A number of issues come to mind when 'micro' is considered: The small size of the loans made, small size of savings made, the smaller frequency of loans, shorter repayment periods and amounts, the micro/local level of activities, the community-based immidiacy of microcredit etc. Hence microcredit is not the solution, but is a menu of options and enablements, that has to be put together, a la carte, based on local conditions and needs.

    With the current explosion of interest on microcredit issues, several developmental objectives have come to be associated with the it, besides that of only "credit". Of particular importance is savings - as an end in itself, and as a guarantee for loans. Microcredit has been used as an 'inducer' in many other community development activities, used as an entry point in a community organizing programme and as an ingredient in larger education/training exercises.

    An interesting stand is taken by the Virtual Library on Microcredit itself - it takes microcredit beyond the confines of 'money' and declares in its conceptual framework that -

    "Microcredit" is as much about money as it is about information. With sustainability and non-dependence on external resources being key to the growth of microcredit programmes, the Homepage focuses on providing pertinent and timely information in the form of strategies, tools, ideas and guides, to grassroots and intermediary organizations, and at the same time, educating the larger public on broader issues related to microfinance and microcredit.

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