What is Microcredit?

Microcredit has been described as the “poverty vaccine.” There is a great demand for microcredit nonprofit agencies like DHF and there is powerful worldwide support for utilizing microcredit as a sustainable and dignified tool for poverty alleviation. 

One in five people in the world —more than 1 billion people —still survive on less than $1 a day, a level of poverty so abject that it threatens survival. Another 1.5 billion people live on $1 –$2 a day. More than 40% of the world’s population constitutes, in effect, a global under-class faced daily with the reality or the threat of extreme poverty (UNDP).

Why is microcredit a critical tool to help lift people out of poverty?

          Commercial banks will not lend to those in poverty

          Poor clients lack collateral, credit histories, and business track records

          Many clients live in geographically remote areas; since they can’t easily travel to a bank (even if the bank wanted their business), the bank would have to travel to them

          Many poor people are illiterate, unable to read a standard loan agreement or sign their name to it without special attention which banks are unlikely to provide

          Many poor people distrust banks, feel unwelcome there, and are unwelcome there

          Banks in developing countries do have histories of instability or corruption, and do believe in some cases that having poor people in their lobbies will alienate their customers, who are usually that country’s elite

          The loan sizes that poor people need are too small, and thus the transaction costs too high, to be attractive business to most commercial banks

          The only alternatives available to many of our borrowers are informal moneylenders or local loan sharks, who typically charge as much as 10 percent interest per day.  In borrowing money in this manner, those in poverty only sink further into poverty (Information from FINCA)

 What are some of the ways microcredit helps the poor?

          Microcredit grows self-esteem for borrowers because it provides options and opportunities to become independent economically. 

          By having access to credit and by building collateral through participation in these programs, borrowers can eventually “graduate” into a more formal system that will provide them with loans for education, health, housing, and emergency family funds.

          Globally, the average on-time repayment rate for this type of microcredit work is more than 97% (Microcredit Summit Campaign)

          Microcredit institutions combine microfinance, new technologies, and innovation to empower the world's poorest people to escape poverty. From simple small loans, the world’s poorest families can then create their own jobs, raise household incomes, and improve their standard of living.  

Why is DHF Working with Women?

          A woman's economic position directly affects her ability to purchase needed improvements in health, housing and education and her bargaining position and power in the family

          Most poor people are women and most women are poor. Almost all low income women are economically active. Most are microentrepreneurs and self-employed in the informal sector. The major economic roles of low income women entrepreneurs and producers are often undervalued and ignored.

          Low income women entrepreneurs and producers—the majority of the world's women—need and merit expanded access to finance, information and markets. Access to finance and economic participation is key to building a woman's confidence and capacity to use her voice to reshape her life.

          Credit access enhances women's status in the community and enables a woman to build income and assets that are clearly hers. Access to finance is central if women are to leverage their time and talents to transform themselves, their families, their enterprises, their economies and their world.

          Women are major actors in the global economy. Women's roles as the farmers, traders, and informal sector industrialists are major, and often overlooked.

          Global experience with microlending demonstrates that women are better credit risks than men, and that poor entrepreneurs have higher repayment rates than large bank clients.

          Investing in low income women entrepreneurs is a highly efficient means to achieve economic and social objectives. Women manage household finances in most of the developing world. As more cash and assets get into the hands of women, most of these earnings get into the mouths, medicine and schoolbooks of their children.

          Increasingly, many households are headed by women, relying on the woman's earnings as the main or sole source of income for the family.

          Women tend to be honest, practical and reliable. This results in a low percentage of business failures and loan defaults among women business owners

          Most women place a high utility on security. This means major potential for large savings mobilization, if the mechanisms are women-friendly (Information from Report of the UN Expert Group on Women and Finance).