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“This is not charity. This is business: business with a social objective, which is to help people get out of poverty” – Mohammed Yunus

Microcredit

Conventional wisdom has it that it is not possible to lend to poor people. This is partly because they have few assets and so are unable to provide collateral and partly because the costs of administering loans to many poor people have simply been seen as being too high.

This notion has been dispelled with the emergence of microcredit, a model pioneered by Mohammed Yunus and the Grameen Bank in Bangladesh, that has now been widely disseminated to over 40 countries around the world, in industrialised and non-industrialised countries alike.

At the heart of the Grameen system is the organization of borrowers into self-help groups of five women – 97 per cent of the bank’s loans are to women. A loan is made to one member at a time and no other group member qualifies for a loan until the outstanding loan has been repaid. This encourages cooperation and mutual support among the members of the group.

As of January 2008, the Grameen Bank has 7,440,000 borrowers. With 2,488 branches, the Bank provides services in 80,949 villages, more than 96 percent of the total in Bangladesh. The Bank charges commercial rates of interest and achieves repayment rates of close to 100 per cent.

These microloans can prove crucially important in helping poor people begin to climb out of the poverty trap. With a small loan, they can purchase simple equipment such as sewing machines, bicycles and water-pumps or raw materials for artisanal activities that make possible an escape from the stranglehold of exploitative moneylenders.

The World Bank estimates that there are now more than 7,000 microfinance institutions, serving some 16 million poor people in the economically poor countries of the South. Microcredit programs in the United States, meanwhile, have granted an estimated $160 million in loans to microentrepreneurs with funding derived from diverse public and private sources.

“The main aims of microcredit”
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Banker to the Poor: Muhammed Yunus - Click on the image for more info

Microfinance: developing pathways to self-sufficiency
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