Posts Tagged ‘microcredit’

Microcredit, a Social Development Tool

December 7, 2016

Sheltered from a pouring rain  by a palm leaf,  Reang is working on her loom, employing at the same time, her feet, and her hand to operate. Every move is graceful and coordinated as a hammock production is in full swing ! Although, traditional activity in the region of Battambang in Cambodia and in a lot of other place around the world are unfortunately in decline.

Many women subscribe to microcredit from microfinance institutions to buy raw materials and upgrade their equipment. Development through financial inclusion of  poor people is

burgeoning and is implemented in the majority of developing countries.

The Concept was developed by Muhammad Yunus,  the Nobel Peace Prize Winner in 2006, and involves the provision of financial assistance to people excluded from the traditional banking system. These poor, often illiterate and mostly unsecured individuals, do not fit into the boxes of large financial institutions. Lending money to them would be too risky.

The microfinance institutions work  in contrary to conventional banks trusting these future entrepreneurs by providing loans to expand or create an income generator. Credit modalities varies from country to country. The amounts are up to 60$ in India and 3000$ in Peru with a repayment spread over 3 to 24 month. Thus the microcredit institution does not only  supply a loan to a single woman or group of women (the latter appear to be more responsible than men) but also provides social and corporate management formations based on playful tools. The topics can range from the importance of not subscribing to several loans at the same time to the use the capital for business and not for consumption.

The practice shows that microcredit institutions have reason to believe in these people: the repayment rate is nearly on average of  98% . Through these actions, they are entire communities who see their standard of living and their social environment improve. Inclusive microcredit used in this manner proves to be a formidable development lever.

Most of the time, beneficiaries need significant cash contribution at a given time. Many micro-entrepreneurs use the money to build up stock, artisans (carpenters, weavers, shoemakers …) are applying for loans to purchase their raw materials needed to make their products. Finally, rural activities are numerous, the loans are used more often to purchase inputs, tools or animals.

Microcredit programs affect the development by creating physical, human and social capital. In fact the activity promoted by the loans increase production and consumption for common pool resources and units ressources. Microfinance has created a new system which is an important lever for sustainability.