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Define Micro Credit

Credit is one of the ancient thinking of human civilization. It has attained place in the centre of poverty and Bangladesh has become the motherland of micro credit program for the poor. About its suitable and fitting definition, it is generally said “Micro credit is a tiny collateral free loans aimed at the poorest of the poor to help them start or expand their self-employment pursuits.[1] For further clarification, Dr. Yunus Says, “Micro-credit is a well tried and well founded method that can bring financial services to the poorest of the poor. Micro credit promotes entrepreneurship, and pits each individual poor person, especially women, in the driving- seat in their own lives. Micro-credit is more about people than about money. It is a question of trusting people. Credit means to trust, to give someone credit.[2]
It is worldly accepted that micro-credit is the extension of very small loans to the unemployed, to poor entrepreneurs and to others living in poverty that are not bankable. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimum qualifications to gain access to traditional credit.

The formal and conventional leading mechanism is primarily based on collateral. For lending money one has to prove that in case he defaults willingly or unwillingly the lender can catch hold of his assets, so the borrower is never trusted. In a situation where majority of the population cannot provide collateral, they are automatically weeded out.
On the other hand, micro credit is concerned with individual decision unit’s family of households and individuals who avail the poor to boost up their income and production and thereby reducing poverty. The micro credit programs operate based on some social mechanism where borrowers are organized into small homogeneous groups. The members are the groups provided with small finance. As no physical collateral security is required to borrow money under micro credit scheme, the group based lending reach the poor and other groups, especially women, who lack access to traditional financial institutions. The recovery mechanism means that each member of the groups trusts to curl his or her obligation of repayment of loan within schedule time. In this way, micro credit programs have been more successful then traditional financial institutions because of its systematic mechanism.
[1] A proposal on south-south partnership on micro credit, Prepared by Australians Donors and Tax payers associations, 7 Burke Place, Mount Colash 2079, Australia.
[2]http://nobelprize.org/nobel_prizes/peace/laureates/2006/presentation-speech.html.