Microcredit:
Microcredit is a component of microfinance and is the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans. In developing countries especially, microcredit enables very poor people to engage in self-employment projects that generate income, allowing them to improve the standard of living for themselves and their families.

Microenterprise:
A microenterprise is a self-employment project or very small business run by a poor borrower. Types of business vary widely by geographic location and may include shining shoes, selling items as a street vendor, selling agricultural products, weaving, sewing or baking.

Microentrepreneurs:
Individuals who live close to or below the poverty line, who are engaged in self-employment projects designed to generate income to improve the standard of living for themselves and their families.

Microfinance:
Microfinance is an economic development approach that involves providing financial services through institutions to low-income clients, where the market fails to provide appropriate services. The range of products provided by the microfinancial institutions (MFIs) includes credit, savings and insurance services. Many microfinance institutions also provide social intermediation services, such as training and education, in line with their development objectives.

Microfinance Institution (MFI):
An MFI is an organization engaged in extending microcredit loans - and often other financial services - to poor borrowers for income generating self-employment activities. An MFI is usually not a part of the formal banking industry or the government.

Microloan:
A Microloan is a loan imparted by a microfinance institution to a microentrepreneur, to be used in the development of the borrower's small business. Microloans are used for working capital in the purchase of raw materials and goods for the microenterprise, as capital for construction, or in the purchase of fixed assets that aid in production, among other things. Microloans generally range in size from $25 to $500, depending on geographic location.

Non Government Organization (NGO):
In the Microfinance industry this term is generally used to describe an entity that works with the poor but is not formally administered by the government. Many NGOs, however, receive portions of their funding from government sources. Microfinance institutions are a form of an NGO.

Peer Group or Solidarity Circle:
A group of 5-8 borrowers who have received individual microcredit loans to finance their collective or individual income-generating activity. The peer group is designed to encourage solidarity among members who co-guarantee each other's loans. Often, if one borrower defaults on his/her loan, the entire peer group is penalized.

Sustainability:
Refers to the ability of a microfinance institution to develop a methodology that ensures loans successfully reach the very poor while covering all of its costs without subsitdy.




Thanks to the World Bank, Unitus, and ACCION for the use of these definitions.

For more resources on microfinance, see the Microfinance Reading List for book reviews on the topic.
























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