Does microcredit work for everyone? No. Is it a panacea? No. Is it the most powerful tool we have identified to help the very poor – those living below $1 a day – rise above poverty with dignity? Absolutely!

Muhammad Yunus and Fazle Abed, founders of the Grameen Bank and BRAC


Microfinance is the provision of financial services to very poor people. Financial services include savings accounts, insurance, money transfer and microcredit loans. Microcredit loans are usually small in size (as little as $50) and used by borrowers to start or develop a small business, helping them to better provide for themselves and their families. Businesses usually involve simple activities like selling vegetables, making clothes, rearing chickens, making stools or pedalling a rickshaw.

The majority of microfinance institutions operate in the world’s poorest countries, particularly in Africa, South Asia and Latin America. However microcredit schemes are now increasingly being used to assist the poor in developed countries in Europe, North America and Australasia.

The potential of microcredit is demonstrated by the story of Jamilia, a microcredit borrower from Bangladesh, who says: “Before opening my food stand, I used to work as a maid in other people’s houses. I had to work from dawn to late night almost for a pittance. We used to live in temporary housing made of straw. Those terrible days are now behind me. Now, I have replaced my old house with a tin shed and my two children are attending primary school.”

Sustainable Development Goal 1 calls for an end to poverty in all its manifestations by 2030. Microfinance, which is widely recognised as one of the powerful tools to combat poverty, has the potential to play a critical role in achieving the ambitious targets set by the world community to transform the world by 2030.

See also Wealth and poverty, Housing and land.