Difference between Microfinance and Microcredit
By Claire Miles - May 17, 2023

Microfinance and microcredit aim to provide access to financial resources for individuals and businesses not qualified for standard financial services. Although they may sound similar, there are some critical differences between them.

Definition

Microcredit is a modest loan made to persons who are not eligible for standard banking services. Individuals who do not have documented sources of income, a solid credit history, or collateral to present throughout the loan process are included. In most situations, these are uneducated individuals from developing nations. These loans assist underprivileged individuals from all over the world to establish the ability to maintain themselves by starting a small company and generating a respectable wage.

Microfinance is a broad range of financial services supplied to low-income individuals who cannot get banking and linked services from traditional financial institutions. No matter where they live, severely impoverished individuals may contact the service. It assists underprivileged individuals in meeting their fundamental requirements and protecting them from harm. It increases per capita income. It promotes gender equality by empowering women via short-term economic aid.

Microfinance vs Microcredit

Microfinance refers to a wide range of financial services for low-income populations, whereas microcredit refers to modest loans for persons below the poverty line. Microcredit, in other words, is a subset of microfinance.

Microfinance provides financing to low-income company owners who may be denied standard credit and lending opportunities. Microfinance products include microloans, savings accounts (micro savings), and insurance plans (microinsurance).

Microloans are available from various lenders, including charitable groups, banks, and credit unions. In the United States, the Small Business Administration (SBA) operates as a middleman to get microloans into the hands of qualified borrowers. The SBA makes cash available to selected intermediary lenders that handle the program.

Comparison Chart
MICROFINANCE MICROCREDIT
  1. Micro-finance includes credit activities and non-credit activities like savings, pension, insurance, etc
Microcredit includes credit activities
  1. Microfinance services assist low-income individuals and businesses in developing nations in starting a small company, increasing assets, productivity, and return on investments, decreasing risk, etc.
Microcredits are small loans with relatively short repayment terms. They are awarded for small-scale operations that satisfy local needs.