Microcredit is often hailed as a miracle solution to poverty. Since the 1980s, it has captured the imagination of governments, NGOs, and financial institutions alike: lend small sums to people excluded from the banking system to help them launch income-generating activities. It’s a simple, flexible, and empowering tool.
But the reality is far more complex.
Behind the promising headlines, some borrowers fall into deep debt, trapped by high interest rates or rushed investments. Others, however, see their lives permanently transformed through carefully structured support. So is microcredit an effective way to escape poverty—or just a trap disguised as a solution? As always, it depends on how it’s implemented, and whether the most vulnerable are truly considered.
Microcredit is frequently put forward as one of the most effective recipes for development. Some see it as the ultimate answer to sustainability. Yet those same voices may later express deep disappointment when they discover that, in some cases, microcredit has led struggling families to despair—even suicide.
In truth, microcredit is neither a miracle nor a scam. Let’s take a closer look.
The Origins of Microcredit—and Its Distortions
The idea of microcredit gained global fame thanks to Dr. Muhammad Yunus, an economics professor in Chittagong, Bangladesh. He was shocked to learn that market women were borrowing from loan sharks each morning and repaying the same evening at outrageous rates. Interest rates vary widely based on many factors, and loan sharks sometimes lose money too. Borrowers can disappear overnight.
There are many microcredit models, but rural people often find them confusing. Even well-educated NGO staff can be misled. And let’s face it—some lenders count on that confusion to profit.
Hidden Dangers: Credit in Disguise
Seed and fertilizer vendors sometimes offer delayed payment plans. A farmer might say, “He’s kind. He knows I’m struggling, so he lets me pay after the harvest.” Sounds generous? In fact, the farmer must sell the harvest exclusively to that vendor—who chooses the time of sale, unsurprisingly when market prices are lowest. On top of that, 10% of the crop’s weight is deducted for “handling.” The farmer ends up losing about 30% of the harvest’s true value simply because he couldn’t pay upfront.
Urgent Needs, Costly Loans
In places like Fish Island in Dong Nai, Vietnam, fishermen are glad to find buyers for their catch. These buyers collude to drive prices down. Fishermen often say, “Our buyer also gives us interest-free loans when we’re in need.” But a quick calculation reveals those “free” loans cost more in lost income than the rice the loan helps them buy.
When the Loan Shark is the Only Option
Most rural households lack savings and access to banks. If a child is hit by a motorbike and needs urgent hospital care, only a loan shark can provide fast cash. The price? 10% to 30% per month. What would you do if that were the only way to save your child?
Even for minor emergencies, people may borrow from local markets while waiting to access money at the bank. Interest? Around 1% per day.
The Power of Savings and Solidarity
So what’s the alternative? Encourage savings. Microcredit should go hand in hand with saving and solidarity. Dr. Yunus created solidarity groups where women saved just a few cents weekly. In emergencies, they borrowed from the group at a modest rate. Even without formal groups, community solidarity is powerful. Within hours, villagers can raise hundreds of euros to help a neighbor in crisis—not for investment, but for survival. For business ventures, collective support is harder to secure, but not impossible.
A Powerful Tool—If Used Right
So yes, beware of loan sharks. But they’re sometimes essential.
At its best, microcredit is a dignified alternative to charity. It fosters responsibility. But success depends on dialogue and mutual understanding. In rural communities where the economy is less monetized and more relational, that dialogue is key.
Microcredit institutions vary in mission. Those focused on scale and profitability must operate differently from those serving single mothers or people with disabilities. These larger institutions resemble banks and play a valid social role.
Microloans Tailored to Local Realities
When the target population is extremely poor, the priority must be thoughtful, low-risk investments. Most borrowers are women. The first loan is modest, low-yield, and repaid quickly—within six months. That’s enough time to grow vegetables, raise poultry, or fatten pigs.
Raglay in Bình Thuận: among the poorest, yet they repay microloans faithfully.
Each loan follows a discussion and hands-on training, often with neighbors. Under these conditions, microcredit is not profitable for the lender. But the goal is long-term success. After 5 to 6 years, borrowers can double or triple their income.
Building Trust as a Path Out of Poverty
When people see that the goal is support—not exploitation—repayment rates skyrocket. At Mekong Plus, it’s 99%. Rural families live with no safety nets. A failed investment could mean losing their only cow, motorbike, or piece of land.
Many farmers are terrified of borrowing and refuse outright. Better-off people don’t share this fear; they have ways to dodge the consequences. But the poor take real, terrifying risks.
A Concrete Example: Ms. Manh’s Journey
Take the case of Ms. Thi Manh in Hau Giang Province, Vietnam. In 2020, her family earned just ₫564,000 per person monthly (about €21). Thanks to a microcredit of ₫2.5 million (about €92) from Anh Duong Center, she started raising ducks and geese. Even in a tough year with zero profit from 1,500 ducks, the family persevered.
They also received housing support: half from the government and 10 million VND from Mekong Plus. Though they had to borrow 25 million VND (€1,000) to cover the rest, they moved into a solid new home.
Her son received a school scholarship. In 2025, after repaying five loans, Ms. Manh and her husband moved to a larger village to work in construction and catering. Today, the family earns around ₫956,000 per person monthly (€36). Their children go to school, the house is stable, and the future is brighter.
Scholarships and Microcredit: A Necessary Complement
For the poorest, trust must come first. That takes months. A school scholarship helps prevent debt for back-to-school costs. Over time, families can consider borrowing to invest.
Microcredit isn’t magic. Nor is it a scam. It’s a powerful tool—but only when rooted in trust, proximity, and support. Among the poor, every euro invested represents a massive risk. They have no safety net, no plan B.
That’s why microcredit must be cautious, gradual, and deeply grounded in local realities. A good microloan is never just a transaction. It’s a relationship, a dialogue, a shared journey toward autonomy. It may not be profitable in the short term for the lender—but that’s exactly what makes it transformative.
Sometimes, the journey must begin with something smaller: a school scholarship, emergency aid, a helping hand. Before we talk credit, we must first build trust. Because without trust, no true development is possible.
Want to make a real difference?
With just €10 a month, you can fund a microcredit and change a family’s future in Vietnam or Cambodia. It’s simple, sustainable, and directly supports people ready to grow.
Find out how to become a sponsor: mekongplus.org/financer-un-micro-credit
