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What is Microcredit - Definition, Types and How It Works
Microcredit, also known as microfinance, is a financial service that provides small loans to low-income individuals or groups who have limited access to traditional banking services. It aims to alleviate poverty, promote entrepreneurship, and empower individuals to start or expand their small businesses. In this blog, we will explore the meaning of microcredit, how it works, different types of microcredits, the benefits it offers, and highlight some notable microcredit schemes. Understanding microcredit can shed light on its significance in promoting financial inclusion and economic growth.
Microcredit refers to the provision of small loans, typically without collateral, to individuals or groups who lack access to formal banking systems. These loans are often granted to entrepreneurs, small business owners, and self-help groups in rural and underserved areas. Microcredit aims to support income-generating activities, improve livelihoods, and uplift individuals from poverty by providing them with financial resources to start or expand their businesses.
Microcredit operates through Microfinance Institutions (MFIs) or Non-Governmental Organizations (NGOs) that specialize in providing financial services to the underprivileged. The process involves the following steps
Microcredit encompasses various forms, including
Microcredit offers several advantages, including
There are several notable microcredit schemes globally, such as
These are some of the notable schemes in India that provide micro-credit or financial assistance to individuals, particularly those belonging to marginalized sections, to start or expand their micro-enterprises. These schemes aim to promote entrepreneurship, self-employment, and financial inclusion among the economically weaker sections of society. Each scheme has its own eligibility criteria, loan amounts, interest rates, and repayment terms. It is important for individuals to research and understand the specific requirements of each scheme before applying.
Also Read - 7 Home-Based Businesses You Can Start with a Business Loan
Microcredit plays a significant role in promoting financial inclusion and empowering underserved communities. By providing access to financial resources, microcredit helps individuals build credit history, develop entrepreneurial skills, and contribute to economic growth. Understanding the different types of microcredit and the benefits they offer can inspire individuals to explore microcredit opportunities and improve their credit control eligibility.
A famous example of microcredit is the Grameen Bank in Bangladesh, which pioneered the concept of microfinance. It provides small loans to low-income individuals, particularly women, to start or expand their businesses.
Microfinance loans encompass all loans provided to individuals from low-income households, specifically those with an annual income of up to Rs.3 Lakh, without the requirement of collateral.
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