dimanche 21 avril 2013

Microcredit: capitalism for all

Today, I focus on microcredit. It consists in lending low amounts (the amount has to be considered in reference to its context) to individuals or businesses in order to finance the realization of small projects, often little shops or family businesses. Microcredit is part of the bigger microfinance family, to which also belong diverse savings, insurance, funds-transfer offers. All in all, microfinance’s objective is to commercialize ad hoc financial products to lower-income populations, who may otherwise have no access to financial offers.

How and where is microcredit used?

It is for this reason, and given the nature of the target population, that microcredit is generally associated with wills to promote economic development of the poor, women emancipation, children scholarship, alphabetization, and so on. With smaller amounts and shorter reimbursement durations, these offers become affordable for smaller projects bearers, whom are found in greater proportion in developing countries. In addition, the well-known Grameen Bank, funded in 1976 in Bengladesh by Professor Yunus, allowed to spread this image.

We think therefore less easily that we can find microcredit around the corner too. In France, personal microcredit on the one hand is a loan ranging from 300€ to 12000€, reimbursed in 6 months to 5 years, allocated by a bank to an individual (non-professional) having a personal project, like buying or reparing a personal vehicle or getting a vocational training. On the other hand, professional microcredit is targeting professional project bearers, be it individuals or organizations, with similar amounts and reimbursement durations.

Why does it matter?

One can see how the underlying logic of microcredit and microfinance more generally is to use the existing market logics and mechanisms to promote the inclusion of traditionally disadvantaged populations, without regard to where they are, what their job and income is, etc. The objective is to not exclude them from a system that has worked for others.

What’s also very important to me in this is the fact that the people benefiting from microcredit and/or microfinance are considered as active entrepreneurs and not as passive victims of a situation. It is not helping by charity, it is giving them credit really: lending money because one is confident they will be paid back. It is fundamentally different from charity and this is the reason why, besides obvious economic viability reasons, I believe microcredit should be used whenever possible prior to charity and aid. One last fact to reflect on: the Grameen Bank’s reimbursement ratio is 98%.

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