Microcredit

Microcredit is the extension of very small loans (microloans) to impoverished borrowers who typically do not have access to traditional banking services due to a lack of collateral, steady employment, and a verifiable credit history.^[1][2] The primary aim of microcredit is to support entrepreneurship, facilitate self-employment, and alleviate poverty, particularly in low-income communities^[1]

The United Nations declared 2005 as the International Year of Microcredit to raise awareness of microfinance as a strategy for poverty reduction and financial inclusion.^[3] By the early 2010s, microcredit had expanded significantly across developing countries, with estimates suggesting that more than 200 million people were beneficiaries of microcredit services worldwide.^[4] While widely adopted, the effectiveness of microcredit remains debated, with mixed evidence on its long-term impact on poverty alleviation.^[5]

Despite its widespread adoption, the impact of microcredit on poverty alleviation remains contested. Some studies have indicated that while microcredit can increase business activity, it has limited effects on household income, education, and health outcomes.^[6] Critics argue that microcredit may contribute to over-indebtedness and perpetuate financial instability for some borrowers.^[7]