Difference between Microcredit and Microfinance

Ashish M. Shaji

21 Dec, 2020

Microcredit and microfinance are two types of fund related activities. In this article, we shall look at what makes them different. Although they may sound similar but there are certain essential points that make them different from each other. Let’s understand them one by one.

Microcredit

• Microcredit is the small credit facility provided to the needy people whose earning capacity is very less. The loan is provided to the borrowers who are unemployed, lacking collateral and whose credit history is not sound.
• The loan is mainly granted to help people earn their livelihood, especially, women who can start their business and become independent.
• Microcredit not only increases the income level of the poor people but also raises their standard of living and provides the financial assistance to the poor class of people in rural areas to help them become self-employed rather than depending on loan sharks for raising finance who charge inflated interest rates.
• The best thing about microcredit is that the loan does not require any asset as collateral. The loan is granted for a short period only.

Microfinance

• Microfinance is a broad spectrum of financial services provided to the people of low-income groups who cannot take bank’s assistance banking and allied services. The service is available to extremely poor people, no matter where they live.
• The purpose of Microfinance Company Registration is to raise the earnings of low-class people and let them access to deposits and loans. The clients may include women, farmers, and pensioners.
• Microfinance plays a revolutionary role in any country’s economy. It helps the poor people to fulfil their basic needs and safeguard them from any risks. It raises the per capita income. It encourages women empowerment by providing term economic assistance and hence promotes gender equality.
• Micro-finance institutions not only provide capital to the startups or small businessman but also deliver such financial services to the poor people who are constantly avoided by the formal financial sector.

Main objective of Microcredit and Microfinance

The main objective of these two is to raise access to financial capital^[1] for individuals or companies who don’t have access to traditional financial service.

Access to financial income is beneficial as it enables income generation, enterprises development etc.

What makes Microcredit and Microfinance different?

The Difference between Microcredit and Microfinance are as follows:

Conclusion

Both microfinance and microcredit look to increase access to financial capital for individuals and for those companies that aren’t eligible for traditional financial service. It increases access to financial capital. In case you wish to know more on these two terms, contact Enterslice.

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