Extended Project - Microcredit

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Zohaib Saeed                                                Edexcel Extended Project

Project Proposal Form

Section One

Topic Proposed title, responsibilities and format

Microcredit . “What is microcredit?, and is the concept economically and ethically viable? ” 

The aim of this dissertation is to provide an in depth analysis of the ethical and economical issues that arise from the concept of microcredit; discussing both the positive and negative aspects of the scheme, enabling me to develop a understanding of the concept, as well as the arguments for and against it. I also intend to pose questions about the ethics of the microcredit model, and the sustainability and viability of the model. The project will be a 6,500 word dissertation examining the above topic utilising the following arrangement:

  • Project Proposal Form
  • Abstract
  • Introduction
  • Literature Review
  • Discussion
  • Conclusion
  • Bibliography

Section Two


After reading an article in 2006 regarding Muhammad Yunus winning the Nobel Peace Prize for his efforts to create economic and social development with his application of microcredit, I was immediately captivated. The article introduced the concept as being the extension of small time loans (microloans, which are often under 100$) to impoverished entrepreneurs and people wishing to become self sufficient. What amazed me was the fact that the poorest people with the most deprived backgrounds had such high repayment rates on these micro loans, ranging from 95-98.5% [1]. Whereas the repayment rates of subprime loans (loans which are lent to those who are considered to be “unbankable” due to the lack of collateral and full time employment in developed countries) have much smaller repayment rates. These loans have contributed to the current economic climate, and have been blamed as the predominant cause of the banking crisis by various economists. Furthermore, the time scale of these microloans and subprime are often very similar, with microloans often having the higher interest rate.  

The impact of these very small-scale micro loans, on deprived individuals, or families has often improved the lives of the beneficiary by increasing their incomes substantially. Grameen bank claim to have lifted over 50% of its clients from poverty (a number which exceeds 50million people). [2]

Additionally, microcredit is rapidly growing ever since its spotlight from the press after 2005. With mainly the positives sides portrayed with the majority of articles, displaying microcredit as a key tool for poverty alleviation, it is also important to see the other side of the argument.

I was never able to research the topic further, but now I have the chance, as well as the interest, making this a perfect choice for me. Furthermore, I wish to study Economics at University, and I believe this will further my learning in the subject. I also believe that this will help me prepare for the new style of learning at University, which places a lot of emphasis on self-learning.

Section Three

Project Objectives

I aim to illustrate and apprehend the theory of microcredit, and establish a firm understanding of the concept. Furthermore, I must assess the ethical and financial aspects of microcredit, portraying both sides of the argument.


I intend to produce a first draft by February 2009 and have a final draft by March 2009. Final hand in and presentation will take place in March.

Section Four

Resources Required


  • Internet websites – guardian.co.uk, bbc.co.uk, yearofmicrocredit.org, kiva.org
  • Books – “Banker to the Poor” by Muhammad Yunus.
  • Journals – Available on www.highbeam.com, http://www.lib.byu.edu/dlib/spc/microfinanc
  • Magazine articles – The Economist
  • Newspaper articles - The Times, The Guardian
  • TV documentaries available on the web – “Millionaires’ Mission”

I can find the majority of these resources in a school, or at the local library. The internet is available at my home, as well at school.


  • Projector
  • Laptop

Section Four

Contingency Plan

Firstly, the amount of information available is vast, and therefore I must choose the

most accurate and reliable sources to use, as well as speed reading sources and isolating and selecting useful information and statistics. Also, the majority of the sources will be biased, as they will have been published by people supporting or opposing it. Consequently, I must study sources from both sides of the argument to obtain an effective conclusion. Moreover, drawing a conclusion from various pieces of conflicting viewpoints- will be difficult. Furthermore, statistical data can be a problem if numbers have been tweaked. To combat reliability of sources, I will employ the method of using credibility criteria.  

[1] "Credit delivery system". Grameen Communications

[2] Fraser, Ian (2007-08-03). "Microfinance comes of age". Scottish Banker magazine.


This project is aimed to provide an introduction to microcredit and its method, and aims, as well as posing the question on the economic and ethical viability of the concept. Currently, there is little material which contains the negatives of microcredit in comparison to the huge amount of positive information which has sprouted from the Nobel Prize being awarded to Muhammad Yunus.

The development of the project at first was fast, but gradually it became slower as more resources were coming together. I also found it useful to include a glossary for the project, containing key words that may not have been understood by people not familiar with microcredit. I also found that the amount of sources used for research was vast, although I expected to extract more from books rather than websites and journals.

This project concludes that microcredit is both economically and ethically viable, but still can be brought a long way in both cases.

Although, microcredit is not financially viable in every situation. Such as when the institution providing the service has its main aim concentrated on providing poverty alleviation rather than making a profit. There are various criticisms with bases which have vast space for improvement.


Microcredit is a financial innovation, which is categorised under microfinance (the provision of various financial services to the poor). Microcredit is the extension of very small loans to poor entrepreneurs and to others living in poverty; those who are not considered to be “bankable”. These individuals often lack credit history, collateral, employment and a credit history. Therefore, these people are classed as “un bankable” and are not able to receive loans from traditional financial institutions.

Microcredit originated in Bangladesh, where it has successfully enabled extremely impoverished people to engage in self-employment projects by often creating new businesses. These projects and businesses allow these people to generate an income and, in many cases, begin to build wealth and exit poverty. Due to some successes of microcredit, many in the traditional banking industry have begun to adopt the opinion that microcredit can be a method for future growth and that it is an effective way of combating poverty, as well as building skills; thus, microcredit is increasingly gaining credibility in the mainstream finance industry and many traditional large finance organizations are contemplating microcredit projects as a source of future growth. Although almost everyone in larger development organizations discounted the likelihood of success of microcredit when it began. The United Nations declared 2005 the International Year of Microcredit.[1] 

Muhammad Yunus, a Bangladeshi banker and economist, first brought microcredit into the international spectrum. He previously was a professor of economics and is famous for his successful application of microcredit, through his founding Grameen Bank of Bangladesh. Yunus founded the bank in 1983 [2] as a method of poverty alleviation, lending money to women in particular to create their own businesses. In 2006, Yunus and the bank were jointly awarded the Nobel Peace Prize, "for their efforts to create economic and social development”. [3]

Many microfinance institutions offer loans to clients who are sorted into self-selected groups of five borrowers. Loans are made to individuals in the group but future loans to any person are dependent upon the performance of the other members of the group. Due to this, there is enormous peer pressure to repay the loan. Group members often help each other if an individual is having a difficult time. For many it is the only way out of poverty. Certain institutions often criticize this method, due to its moral aspects, because if a loan is not repaid, the entire group is refused access to future loans, resulting in one individual, or a company receiving a large amount of pressure and abuse.

Critics of microcredit claim that the loan providers are often very harsh with their clients, and do not allow leniency. This can result in failed business owners being stripped of any money they possess; subsequently the loan has made their life worse.

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Furthermore, certain economists argue that certain individuals, or groups, only take out loans to buy food and other resources. This causes the loan recipient to gather a debt that they are unable to pay back.

In this project, I aim to provide an in depth analysis on the current state of microcredit, introducing the concept and what it’s aimed to, as well as posing the following questions

  • Is microcredit financially viable?
  • Is microcredit ethically viable?

I chose to pose these exact questions as they are topics of hot debate currently, and much of the current press is ...

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