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Unformatted text preview: Microfinance and Microcredit Today, the world has reached at much higher levels in the matters related to financing and helping the poor and needy people. Otero (1999, p.8) defines microfinance as “the provision of financial services to low-income poor and very poor self-employed people”. Later (Schreiner & Colombet, 2001) says about microfinance that it is “an attempt to improve access to small deposits and small loans for poor households neglected by banks”. Microfinance can therefore be said as the facility of lending loans, insurance and savings for the poor who cannot avail the formal services of financial sectors. Usually people thinks about microcredit same as microfinance but actually the microcredit is the sub component of microfinance that lends small credits to the needy for solving their current problems. Microfinance is the broad term that includes all the things like savings, insurance, payment services and pensions and so on. But microcredit is the name of small loans only and thus also comes into one category of microfinance. According to the research (Sinha, 1999), it is said that “microcredit refers to small loans, whereas microfinance is appropriate where NGOs and MFIs supplement the loans with other financial services (savings, insurance etc.)”. History Microfinance and microcredit actually started getting popular in 1970s and now new developments are coming in this field (Robinson, 2001; Otero, 1999). Before 1970s, the funding for the poor was made by means of Government institutes and donor’s financial programs. But they had number of negative points for example most of the time frauds were being made in such programs and the loan amount doesn’t reach the needy person thus most of the organizations used to go in the list loan defaulters (Robinson, 2001). Grameen Bank and the BRI were the first one to start this trend of lending small loans in 1980s. This time was the most important and critical time for the microfinance institutes. These banks claimed that they can provide these saving services with profits and yes they received great response. These were highly sustainable without any subsidies (Robinson, 2001). Additionally this trend gave popularity to the concept of microcredit. It was at that time when microcredit proved to provide high range profit as previously the repayment, interest and other terms were signed before lending the microcredit (MIXMarket, 2002). During the era of 1990s, high growth was seen in the number microfinance institutes and they all tried to reach up to the high scale (Robinson, 2001, p.54). Since the microcredit institutes get stabled and were efficiently providing credit to the poor, and then they started to think of the other extra services too. Later they started on considering the facilities of savings and pensions to be provided as well for the poor people. The 1990s is said as the decade of microfinance (Dichter, 1999). Poor people really admired this act of financing institutes and thus the demand (Dichter, 1999)....
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- Fall '08
- Poverty, Institutes, Microfinance Institutes, Microcredit Microfinance