Microcredit (also known as microlending, microfinance, village banking, and “barefoot banking”) involves providing small, short-term, collateral-free loans to the poor-typically women-living in developing countries. The loans, typically less than $100, are intended for the creation or expansion of small businesses so that recipients can earn the income necessary to move their families out of poverty.
Although pioneered in the 1970s, the past decade has seen thousands of microcredit banks provide loans to more than 100 million people. Advocates claim that microcredit can help foster prosperity, enhance quality of life, build community, and promote women's status. Yet, numerous challenges remain if microcredit is to expand and effectively meet the demand for assistance by the ever-increasing population of poor in the world.
How Microcredit Differs from Traditional Aid