Historically the poor have been excluded from borrowing, as they do not posses the collateral required by the banks. Instead, they have fallen victim to unscrupulous loan sharks, or simply continued to exist hand to mouth.
Microcredit Organisations are non profit making, non-government, financial institutions, set up for the purpose of helping the poor break this cycle of dependency and get onto the first rung of the development ladder.
Microcredit is the distribution of tiny loans to the poorest of the poor, without the requirement for collateral.
Loans ranging between $20 and $200 provide the means to purchase the tools or supplies needed to start or expand a micro business that can range from weaving, sewing, grinding grain, reselling produce, growing and selling vegetables, catching and selling fish, raising chickens to sell eggs, raising goats to sell milk and breeding livestock etc.
Loans are often given with support in the context of a broader social support structure of
- free basic business/financial coaching
- free legal and civil rights advice
- free health and diet education
- Thus ensuring the greatest chance of long-term success….
Why Microcredit works so well?
Loans are given to groups of borrowers, who encourage each other and hold one another accountable to pay back their loans.
As a result bad debts are very low.
Women have proven themselves to be the most reliable borrowers of micro credit.
Their commitment is not simply to the other members of the borrowing group, but to their family, their children.
As a result the profile of borrowers is heavily biased toward women, as much as 98% in many regions.
As each micro loan is repaid the money is recycled as another loan, thus creating a model of self-funding for the micro credit lending institution.
In many cases charity can destroy dignity and lead to a dependency culture. Significantly, microcredit promotes work, tiny enterprise, self-reliance and as a consequence self esteem. It has proven itself hugely effective in contributing to lifting families, communities and indeed entire societies out of extreme poverty.
Microcredit is changing the world…
Microcredit is such a simple and intelligent concept it begs the question, why did nobody think of it sooner. Well the answer to that is that they did. Bangladeshi native Mohammad Yunus, originated the concept over 30 years ago in his home country. When he discovered that the established lending institutions could not, or would not lend to unsecured borrowers, despite evidence of almost flawless repayment when he himself loaned them the money, he finally set up his own bank. Since inception the Grameen Bank has loaned in excess of $6.25 billion with a loan recovery rate of almost 98.5%.
It is credited with having assisted over 50 million Bangladeshis exit extreme poverty and played a major role in the economic transformation of the country.
Word of its success spread slowly at first, but in recent years an unstoppable momentum has been gathering. The BRAC and Grameen models are now being replicated in regions of extreme poverty around the world, such as Kosovo, Haiti, Afghanistan, Kenya, Sri Lanka. Even in New Orleans after the devastation of Hurricane Katherina.
It is Sea Changes ambition to continue to raise awareness for the powerful concept that is ‘Microcredit’ and to raise funds to support new ‘Microcredit’ projects throughout the developing world.