By Vince Caruana
The definition of micro-credit was adopted following the Micro-credit Summit held in February 1997. Micro-credit refers to programmes that extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.
Muhammad Yunus, the founder of the Grameen Bank - a pioneering micro-credit initiative - is quoted as having said: "One dollar, two dollars can make such a difference in a life. Before starting Grameen, we made a list of 42 people who needed a total of only $27, less than one dollar apiece. That was my biggest shock. How can people suffer for want of such small sums of money?"
The criteria used for micro-credit include:
Size - loans are very small in size;
Target users - usually low-income households;
Utilisation - the use of funds - for income generation, and enterprise; development, but also for community development in health and education; and
Terms and conditions - most terms and conditions for microcredit loans are flexible and easy to understand, and suited to the local conditions of the community.
In simple words micro-credit is the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans. Several developmental objectives have come to be associated with micro-credit, besides that of only "credit". It has been used as an entry point in community programmes and as an ingredient in larger education/training exercises. In fact micro-credit is as much about information as it is about money, and in communities where micro-credit has been made available, time has shown a greater investment in education, sanitation, and environmental protection, increased gender equality, and decreased malnutrition, among other changes.
Micro-credit has also been used successfully in conjunction with fair trade initiatives. Fair trade coffee gives growers access to micro-credit and technical support, to ensure a fair return for their work. SEWA, a women's union of craft producers continuing a fine tradition of weaving, embroidery and mirror-work in India, offers micro-credit to people who would not ordinarily have access to loans and banking facilities.
Micro-credit is not a panacea but an option that has proven to be an effective and popular measure in the ongoing struggle against poverty, tailor-made to local conditions and needs. Since the beginning of the decade, about 3,000 microfinance institutions have been established in developing countries.
In an era where overseas development aid risks being overshadowed by other competing agendas, micro-credit can offer the hope of unleashing the entrepreneurial capabilities of poor people, and especially of poor women, at a modest cost and with a minimum of bureaucracy.