Microcredit, economic development, and welfare

Microcredit is the provision of very small loans to the unemployed, to poor entrepreneurs, or to other living in poverty who are normally considered "unbankable" because of high repayment risks. Originated in India and gradually gaining credibility in the mainstream finance industry, microcredit is a part of microfinance, which includes a wider range of financial services, such as credit, savings, insurance, and fund transfers, to the very poor.

In recent years, microcredit has been championed as a financial innovation which may enabled extremely impoverished people to engage in self-employment projects that allow them to generate an income and, in many cases, begin to build wealth and exit poverty. In 2006, Grameen Bank, a microcredit pioneer in Bangladesh, and its founder Muhammad Yunus were awarded the Nobel Peace Prize. The success of the Grameen model relies on some innovative ways, such as solidarity lending, to reduce repayment risks through social networks.

If well-managed, microcredit has gained recognition as an effective way to bring very poor families low-cost financial services and meanwhile to add profits to the investors (for it charges much higher interest rates). However, critics argue that microcredit shouldn't be used to support a privatization of public safety-net programs; it would be dangerous if enthusiasm for microcredit among government officials as an anti-poverty program may motivate cuts in public health, welfare, and education spending.