Latino Story about Micro Credits
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In finance, microcredit is the extension of loans to very small poor borrowers who typically lack a collateral, steady employment or credit history verifiable. It is designed not only to support entrepreneurs and reduce poverty, but also in many cases to empower women and encourage entire communities because of its size. In many communities, women do not have a stable work history than traditional lenders tend to require. Many are illiterate and therefore unable to complete the paperwork necessary to get conventional loans.
Microcredit is a part of microfinance, which offers a wider range of financial services, particularly savings accounts for the poor. It is generally considered that the modern microcredit bank originated with the Grameen founded in Bangladesh in 1983. Many traditional banks subsequently introduced microcredit despite initial misgivings. The United Nations declared 2005 the International Year of Microcredit. In 2012, microcredit is widely used in developing countries and is presented as a "tool with enormous potential for poverty reduction."
However, some critics argue that microcredit has had a positive impact on gender equity, not alleviate poverty and has led many borrowers into debt traps and constitute a "privatization of social assistance." The first randomized evaluation of microcredit, led by Esther Duflo and others showed mixed results had no effect on household spending, gender equality, education or health, but the number of new businesses increased by one third in Compared to a control group. Professor Dean Karlan of Yale says that while microcredit generate benefits are not the panacea that have implied. It also calls for providing access savings accounts for the poor.
The United Nations see in microfinance an important instrument for achieving the Millennium Development Goals of reducing poverty. The year 2005 was the United Nations Year of Microcredit. The number of recipients of microcredit is estimated at 150 to 200 million worldwide. The global volume of financing is estimated at about 70 billion US dollars.
Worldwide, the number of micro-lenders is estimated at over 70,000. Two organizations that focus engage microcredit in the region, are the German Microfinance Institute, and FINCA International (USA). Recently developed increasingly private, increasingly commercially oriented providers such Smava the field. The centers of microfinance are in India and Bangladesh. In the world's largest market of India, the number of microcredit is currently about 75 million, taking into account that many borrowers obtain several loans simultaneously.
Many of these organizations operate today, ironically, as an independent bank, which has led to a sharp rise in interest rates in the average microcredit and the emphasis has shifted to austerity programs. As an example, Unit Desa up to 20% interest rates demanded on microcredit. These developments led to discussions in the meaningfulness of microcredit and accusations by development experts that Bank directors would take over the practice of loan sharks through microcredit.
The annual percentage rate for microcredit is well above the classic loans, often more than 20% p. a. This is justified by the higher costs and the need for intensive counseling, cause microloans. A study by the Asian Development Bank called interest between 30 and 70% p. a. as usual. However, the loan terms and interest rates of developmental Micro Lenders are usually much cheaper and more predictable than those of traditional moneylenders.
Through microcredit poor people in developing and emerging countries should be given the opportunity to take out loans under economically acceptable conditions. For small businesses, which represent the main target groups of microfinance, as should the possibility of investing in improving the commercial or are created in the first place. This in turn is the economic activity of customers and thus indirectly also the standard of living can be increased. Miracle cure, the microloans are not, because they presuppose a certain degree of independence and thus the poorest of the poor often can not reach.
Also, microcredit just a first step. In most cases, microcredit clients even after years unable, regular savings accounts with commercial banks to open and so to secure the economically through microloans achieved. Institutions in the sense of a broader microfinance and savings options (approach micro savings) and other financial services offer, go one step further.
Increasingly, the concept of microcredit is also transferred to industrialized countries.
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