Micro-credit in the South

If you are poor and have no collateral, it is usually impossible to borrow money from a bank. Perhaps you can borrow from a money-lender, but you will pay high rates of interest.

Microcredit is a system where poor people in poor countries can borrow small amounts of money at low rates of interest - even if they have little or no collateral. It works through small banks which lend money to local people so that they can start businesses and earn their living.

COLLATERAL: Possessions that guarantee a loan. If you borrow money and cannot pay it back, you must give the lender your collateral.

A MONEY-LENDER is a person who lends money at very high rates of interest.

LOCAL people are the people who live in an area.

Here is an example of how the microcredit system works:

Farida lives in Bangladesh. She makes mats. Each mat takes about five days to make and Farida sells the mats for the equivalent of $2 each.

Farida had borrowed money from a money lender to start her business and was paying a lot of interest. She could afford to buy food, but she could not save any money for emergencies.

EQUIVALENT: equal to.

INTEREST: the charge or cost of borrowing money. You usually pay a certain % of the amount you have borrowed.

One day, someone from a microcredit project in Farida's community offered her a loan. The rate of interest on this loan is much lower than the rate of interest from the moneylender.

Farida benefits because it is easier for her to repay her loan: at the same time, the money she repays, plus the small amount of interest, can be lent to another person. In this way, the project grows and helps the local community.

MICRO = small
CREDIT = the opportunity to borrow money.

RATE OF INTEREST: the % you have to pay on money you borrow.

REPAY: to pay back money you have borrowed.

The people who join the microcredit project cooperate with each other and take responsibility for making the project successful. They make the loans, and they help and support each other while they are repaying the money they have borrowed.

COOPERATE: work together.

To TAKE RESPONSIBILITY is to make sure that something is done right.

The first microcredit project was started by Muhammad Yunus in Bangladesh. Later it became known as the Grameen Bank. It has been so successful that microcredit schemes have been started in many Majority World countries.

MAJORITY WORLD COUNTRIES are the poorer and less developed countries where most people of the world live.