What is Microcredit?

Microcredit is the practice of providing entrepreneurs with small loans. Microcredit loans reach non-traditional borrowers, enabling entrepreneurs who otherwise lack access to credit to invest in and grow their businesses. Successful business growth in turn allows entrepreneurs to repay their loans, generate personal income, and create jobs in the local community. Running a business and building a credit history helps entrepreneurs to establish financial independence and gain confidence in their business management skills.

Microcredit focuses personalized attention on first-time borrowers, and recipients of microcredit loans may not have had previous experience managing large sums of money. Microcredit programs therefore break down loan repayments into manageable installments which are repaid frequently and regularly. Strong support and business training components help ensure that targets are met and that loans are used effectively.

Microcredit not only alleviates poverty and builds social capital, it also fosters urban economic development. Small businesses funded by microcredit add economic diversity to cities and fuel economic growth. By giving small businesses the opportunity to grow, microcredit makes a tangible contribution to the economy and culture of urban neighborhoods as well as to the lives of individual entrepreneurs.