Microcredit programs extend small loans to very poor individuals or communities, allowing recipients to set up self-employment projects that will generate much needed income or for other community purposes. Most often, recipients are too poor to qualify for traditional bank loans. Moreover, the terms and conditions of microcredit loans are more closely tailored to specific community needs and conditions.
Professor Mohammed Yunus initiated Microcredit programs in Bangladesh more than 20 years ago as an additional tool in the struggle against poverty. Since then the practice has been adapted in numerous countries, including Norway and the United States. In the case of community development, microcredit is often used to build decent housing, improve water supplies, and to meet other health, sanitation and educational needs. When provided to individuals, the loans are generally used to set up small enterprises, providing income, increasing self-esteem, and fostering greater social mobility among socio-economically depressed areas of society. One indication of the success of this approach is that a very high percentage of loans are repaid.

Today the Grameen model developed by Professor Yunus is only one of many credit-lending models in use by Microfinance institutions. Some of the other models include:

- The Intermediate model, in which some other organization, often an NGO, operates as intermediary between lender and borrower. This organization also works to assist the borrower through education and other means that will improve its credit worthiness.

- The Peer Pressure model, which depends on some connection between the borrower and other program participants. For example, a borrower who does not repay a loan will jeopardize the chance for any other person from his or her group to receive a loan. Therefore pressure will be applied in the form of frequent visits to the defaulter, or through community meetings where they are identified and requested to comply.

The Rotating Savings and Credit Associations model, in which a group of individuals make regular, cyclical contributions to a common fund. The proceeds for each cycle are then distributed to a different individual on a rotating basis.