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– Microfinance uses social capital |
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Microcredit and social capital
Microcredit consists of granting small loans to entrepreneurs or artisans who cannot access traditional bank loans. It is developing especially in developing countries, where it makes it possible to realize micro-projects thus promoting activity and wealth creation but is also practiced in developed countries or in transition. Micro-credit is part of a more complete sphere which includes other financial tools such as savings, micro-insurance and other products which form micro-finance.
We can find ancient origins in the agricultural credit mutuals created in Europe at the end of the 19th century. The form originally chosen was based on the collective credit methodology, using joint guarantee mechanisms and peer supervision to cover credit risk. The system was taken, adapted and then developed by economics professor Muhammad Yunus over the past 30 years. After studying at Vanderbilt University in the United States, Yunus gave economics courses in Chittatong in Bangladesh, his hometown. During a practical session of an investment course, he asked his students to interview the manufacturers of bamboo stools in the nearest villages. The 42 artisans need a total of $27 to develop their business. However, all banks refuse to finance this very low amount to customers who are a priori insolvent. Yunus declares that he was ashamed of this situation and lends the sum from his own pocket. By allowing producers to purchase bamboo in advance without experiencing significant price variations, they succeed in creating jobs and fully reimbursing Yunus. On October 13, 2006, the Nobel Peace Prize was jointly awarded to Muhammad Yunus and the Grameen Bank he founded.
The micro-credit activity encourages micro-projects at the local level. This makes it possible to induce mutations “at the base”. These are often more effective and have a greater knock-on effect – by creating an economic network in the country – than certain infrastructures or certain large industrial projects which rarely benefit the poorest. Another characteristic of this movement is that it relies on relatively effective insurance and traditional solidarity networks which promote the regular repayment of loans. Micro-credit actions are financed by solidarity savings and therefore do not “compete” directly with other types of sustainable development actions. It is often more desirable not to link micro-credit to other development aid mechanisms, the two tools being more complementary than substitutes. (Source: Wikipedia 11/12/2006)
There are close links between micro-credit, sustainable development and social capital. Micro-credit is not only characterized by the small volume of each loan granted, but also by the fact that it is allocated to poor recipients or those who would be considered insolvent by traditional banks. He therefore calls on joint savings and guarantees. This collective dimension brings into play social networks and trust, that is to say social capital. The latter is also present in terms of the ripple effect and economic networking. Social capital is a condition for the success of micro-credit, and has been since its beginnings, even if developments in recent years make it increasingly resemble flexible individualized financing similar to other banking products.
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