Glossary term
Micro-Credit: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
Micro-credit refers to very small loans extended to poor households, who lack collateral and are shut out of formal banking. It is often provided through self-help groups that pool savings and lend to members. It helps poor families start small trades, meet needs and build savings habits.
In more detail
The idea is that the poor are creditworthy when lending is based on trust and group responsibility. The textbook notes that by March 2003 over seven lakh SHGs had been linked to credit. Concerns include loans being used for consumption instead of business and interest charged by some lenders, so the quality of group lending matters.
Example
A group of ten women pools ₹12,000 and lends ₹3,000 to one member to buy a sewing machine, repayable in small instalments.
Key points
- Small loans without collateral.
- Often group-based.
- Promotes thrift and women’s empowerment.
Common mistake
Assuming micro-credit loans are always used to start a business.
Related terms
Self-help groupDiversification
Where it is explained
This term is explained in Class 11 Indian Economic Development Chapter 6: Rural Development.