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e-Journal

 

The Promise of Microfinance for Poverty Relief in the Developing World
(Released May 2007)

 
  by Matthew Ruben  

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Key Citations

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Glossary

Editor
 
Glossary

Collective Action: The pursuit of a goal or set of goals by more than one person. In economic theory, it concerns the provision of public goods (and other collective consumption) through the collaboration of two or more individuals, and the impact of other consequences on group behavior.

Gresham's Law: An economic theory that holds that if two kinds of money in circulation have the same denominational value but different intrinsic values, the money with higher intrinsic value will be hoarded and eventually driven out of circulation by the money with lesser intrinsic value.

Informal Sector: Economic activity that is neither taxed nor monitored by a government, and is not included in that government's Gross National Product (GNP). Observing that this includes the majority of people in developing countries, Muhammad Yunus writes, "the informal sector really represents the people's own effort to create their own jobs. I prefer to call it the 'people's economy.'" (Yunus 1999, 150)

Microcredit: Small loans, usually granted to impoverished people, and usually for the sake of helping them either become self-employed or help with an entrepreneurial enterprise. Also known as microlending, microcredit is a form of microfinance, but microcreditors do not offer depository or any financial services apart from small business loans.

Microfinance: Programs offering banking services (often emphasizing microcredit) to unemployed or low-income individuals or groups who would usually not have access to traditional banks. In addition to offering loans, microfinance institutions can provide other services to poor people, including giving them a means to save money or purchase insurance.

Microfinance Institutions: A financial institution that provides microfinance products and services to low-income clients. Commercial banks can be considered MFIs, but MFIs can also be nonprofit organizations and are often not licensed in the same way as banks, so in some cases they cannot legally take deposits or handle many financial transactions.

Non-Governmental Organization (NGO): A nonprofit or voluntary group that operates independent of government, often working on international development issues.

Public good: In economics, a public good is a good that is "non-rival", meaning that consumption of the good by one individual does not reduce the amount of the good available for consumption by others. It also can refer to goods that are "non-excludable" as well, meaning it is not possible to exclude individuals from the good's benefits. In the case of the repayment of a group loan, all members benefit equally from its repayment, suggesting that as a collective "good", the repayment is non-excludable.

Social Capital: An economic idea that refers to the connections among people including the institutions, relationships, attitudes and values that govern interactions and contribute to economic and social development.