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,
whose microcredit institutions currently serve 7.6 million clients in Bangladesh

Microcredit is the provision of financial services to very poor people. Financial services include savings accounts, insurance, money transfer and microcredit. Microcredit is the most recognised aspect of microfinance. Microcredit loans are usually small in size (about $AUD50) and are used by borrowers to start or develop a small business, through which they work their way out of extreme poverty.

Businesses usually involve simple activities like selling vegetables, making clothes, growing chickens, making stools and buying a rickshaw.

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

By the end of 2005, microcredit institutions had reached nearly 82 million very poor people in the world, mainly women.

Microcredit has proven to be an effective tool in fighting poverty. A 1998 World Bank study of Grameen Bank borrowers in Bangladesh found that within 5 years of entering a loan program, extreme poverty among borrowers was cut by over 70%.

An example of the effectiveness of microcredit is shown by Jamilia, a microcredit borrower from Bangladesh. She 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.”

A Microcredit Summit meeting was held in Halifax, Canada, in November 2006, involving delegates from over 100 countries, including Australia. The Summit agreed on a new goal – for 175 million of the world’s poorest families to receive microcredit and other financial and business services by the end of 2015.

The Australian Government funds microfinance programs through its overseas aid budget. In 2005-06 the value of microfinance funding was $14.5 million, or 0.6% of the aid budget. RESULTS Australia calculates that Australia’s fair share of meeting the Microcredit Summit goal is 1.25% of the aid budget (the same proportion as the USA). To reach this proportion will require an increase to $AUD40 million per year.