Microcredit is a variation on traditional credit service that involves providing small loans to people who would otherwise be unable to secure credit, typically because of poverty. Related barriers may include unemployment or underemployment and a lack of collateral and credit history.
Microcredit is sometimes provided to fund a business initiative by the recipient. The entrepreneurs involved are sometimes referred to as “micro-entrepreneurs” because the scope of their projects and the sums required to fund them are very modest.
Microcredit is one component of microfinance, which also includes other financial services such as savings accounts, insurance and money transfers.