MICRO CREDIT BASICS

Microcredit loans are intended for those who cannot qualify for loans from traditional financial institutions. The loan terms are designed to help those who only need a small amount of capital to facilitate their microenterprise.

Often, microcredit is organized around “solidarity groups” or “village banks.” These groups are comprised of individuals in a community who want microcredit loans. The purpose of such groups is to create a feeling of community, provide a network for support and discussion, and back up one another’s loans. Since microcredit loans do not require traditional collateral, the members of the group act as insurance for each other’s loans—if one person defaults on a loan, the group members pay it back. Generally, before anyone in the solidarity group or village bank can get an additional loan, all members of the group must have their initial loan paid off.

Some organizations that offer microcredit also offer other financial services, such as savings plans, insurance, and business training classes. Like microcredit loans, these services are designed to help microenterprise owners achieve growth and success in their business.

Impact

Since the founding of microcredit, thousands of microcredit organizations have sprung up around the globe. In 2007, over 100 million of the poorest families received access to microcredit. As it spreads across the world, microcredit looks to be a powerful force in helping individuals “work their way out of poverty with dignity.”
President Gordon B. Hinckley spoke of the promise of microcredit. He said that such loans “can spell an actual change in [the loan recipients’] future. When given such credit these people become entrepreneurs, taking pride in what they are doing and lifting themselves out of the bondage that has shackled their forebears for generations. From a bread shop in Ghana to a woodworking business in Honduras, we are making it possible for people to learn skills they never dreamed of acquiring and to raise their standard of living to a level of which they previously had little hope”

Accessing Microcredit

Microcredit is accessible in many countries of the world. For individuals seeking to earn income through a microenterprise, a microcredit loan or other microfinance services may provide opportunities for growth and success. If you are interested in receiving a microcredit loan, seek reputable organizations in your community that offer microcredit services. Before engaging in financial interactions with any lender, be sure to evaluate the institution by comparing its services and rates to other institutions and talking to people who have dealt with the organization before.