Difference Between Microfinance and Microcredit

Difference Between Microfinance and Microcredit

Generally, a business, firm, company or individuals who need money, get through loans any many other ways from the financial institutions like banks or a private company. There are some people who don't get a loan or any type of credit from the market because they are not in a position to fulfil the criteria to get finance. These people don't have property also so that by
putting it as collateral they will get a finance and when they want to take a finance from the market, a lender will charge a high rate of interest. This will lead to the concept of the microfinance which was specifically designed for the indigent people. Microcredit is a part or we can say a branch of the microfinance.

Microfinance

  • The microfinance concept came into existence in the 15th century but was put into practice in late 1970 by the Grameen Bank Of Bangladesh and then it was adopted by the developed as well as developing countries. 
  • Microfinance is the process of extending financial services to those people who have low income and it becomes hard for them to get finance from the banks and other private money lenders. 
  • Microfinance is a broad concept to provide financial services to those who are getting finance from a bank; it means this service is available only to the poorer people. 
  • Microfinance is a revolutionary concept in an economy and it helps to meet the basic financial needs of the poor people and save them from all kind of risks. 
  • A microfinance increases the per national capital income and tries to bring equality in the economy. 
  • Microfinance offers loans, savings, insurance and much more to the underprivileged. 
  • It is an economic as well as social tool by which a needy people get finance to meet their need. 

Microcredit

  • A microcredit is an aspect of the microfinance which is specifically meant to provide credit to the poor customers. 
  • The main purpose of it is to use this finance for those who want to come out of the poverty and be self-sufficient and the earning ability is very low. 
  • A microcredit is given to those who are unemployed, do not have property, and do not have a sound credit history. 
  • A microcredit will increase the income level of the poor people along with living standard. 
  • By microcredit, poor people will get a loan without putting anything as collateral security. 

Difference Between Microfinance and Microcredit 


Meaning

  • Microfinance indicates a number of financial services provided to the small entrepreneurs and enterprises who do not get finance from the banks or any other institutions. 
  • Microcredit is a small loan facility provided to the people to those who have less earning and encourage to become self-employed. 

Component

  • Microfinance is a whole concept. 
  • A microcredit is an aspect or we can say a component of the microfinance. Microcredit is an extended service of the microfinance. 

Services included

  • Microfinance includes the variety of services like savings, deposit, insurance, loan, pension, and credit. In short, it includes both credit and non-credit activities. 
  • A microcredit includes loan and credit. It means only credit activities. 

Conclusion:

  • A Microcredit and microfinance both are important factors for the development of an economy as there is a high percentage of the population who live in poor condition. So, this concept helps to improve the condition of this people. 



Smart Prep Kit for Banking Exams by Ramandeep Singh - Download here


Join 40,000+ readers and get free notes in your email

0 comments:

Post a Comment

Thanks for commenting. It's very difficult to answer every query here, it's better to post your query on IBPSToday.com