Microcredit is small-scale (micro) lending (credit) in developing countries to help fund businesses and self employment, new projects and specific causes. Some microcredit platforms are more like crowdfunding, where thousands of individuals come together to provide funds. Others are run by large banks and businesses.
The backlash against microcredit has been growing in recent years as those who were supposed to benefit fall into a debt cycle in trying to pay back their loans and the interest rates on the credit start to bite.
Such schemes are now seeing opposition and limits across the world. In Cambodia, where the microcredit industy is worth $4 billion, an interest rate cap has been mandated by the government against banks offering microcredit loans. Interest rates are limited to 18%. This has caused debate as some people believe it will limit what the banks lend and could force those in need back to much more expensive and dangerous informal lending.
In Bangladesh, another big market for microcredit, microinsurance is now available – paying to insure debt against the death of the borrower, natural disasters and so on.
While microcredit has its success stories the Gardiner Foundation doesn’t believe it is the most sustainable way to lift people from poverty. Instead, we practice microinvestment. This is money invested into businesses run by local people. It goes directly into income generating activities and is only paid back on profit – not to a loan schedule. Support and training is also offered as it is in everyone’s best interests that the business succeed. When the business succeeds the individuals, their families, and their communities all benefit.