Microfinance the way forward
When we started The Jedidiah Trust it became clear to us very quickly that we couldn’t just teach the women about business without providing the avenue for saving and the provision of microcredit. This is why we started a branch of the NGO the Jedidiah Susu savings and Microcredit that will deal with just that.
We get a lot of questions about this aspect of our work. Questions like does Microfinance really help? Are you sure this little amount can change lives? Luckily I found this article By Gbenga Ogunbufunmi ,Asst. Business Editor, Daily Independent Online that best describes the most powerful illustration of the impact of microcredit or microfinance banking by the man who started it all Dr. Muhammad Yunus of the Grameen Bank.
Microfinance banking (MfB) started as a concept to provide financial services to the world poor, those who by circumstances of not being rich are excluded from access to the conventional commercial banks and other financial institutions due to lack of collateral.
The concept presents series of exciting possibilities and opportunities for improved markets, reducing poverty and fostering social development among citizens.
The concept of microfinance originated in the mid-1970s in Bangladesh, an Asian country, through the pioneering experiment by Dr. Muhammad Yunus, then a professor of Economics in one of the country’s tertiary institutions, Chittagong University.
Yunus’ objective was to offer the poor in that country financial services, entrepreneurship opportunities and an end to mistreatment by money-lenders, a system where they could produce, manage and maintain their own finances.
Yunus’ experiment in microfinance was in the granting of microcredit; that is, extending small loans to entrepreneurs who are too poor to qualify for conventional bank loans.
The advantages of microfinance are numerous. First, it is sustainable and creates independence from aid. Yunus believed that by giving small loan to an individual or group of people who cannot access credits from the conventional banks would give them the ability to work their own way out of poverty.
Secondly, it means that the money goes directly to the people who need it – bypassing the bureaucracy and corruption that can compromise traditional methods of charity.
Moreover, Microloans are never lent to individuals without first providing them with the expertise and training to build business plan that is likely to succeed, and such projects are even monitored.
Yunus’ interest in the scheme was aroused by the conditions of the poor in his country who, despite their entrepreneurial instinct, lacked the means of translating their desires into reality.
Thus, in 1974, Yunus led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learnt that she had to borrow the equivalent of 15 pence to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10 per cent a week, she was left with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level, Yunus thought.
Realising that there must be something terribly wrong with the economics he was teaching, Yunus took matters into his own hands, and from his own pocket lent $27 to 42 basket-weavers in nearby town of Jobra. He found that it was possible with this tiny amount not only to help them survive, but also to create the spark of personal initiative and enterprise necessary to pull themselves out of poverty.
Against the advice of banks and government, Yunus carried on giving out ‘microloans’, and in 1983 formed the Grameen Bank, meaning ‘village bank’ founded on principles of trust and solidarity.
In Bangladesh today, Grameen has 1,084 branches, with 12,500 staff serving 2.1 million borrowers in 37,000 villages.
On any working day, Grameen collects an average of $1.5 million in weekly instalments. Of the borrowers, 94 per cent are women, and over 98 percent of the loans are paid back, a recovery rate higher than any other banking system.
Grameen methods are applied in projects in 58 countries, including the United States (U.S.), Canada, France, The Netherlands and Norway.
Today, Yunus runs Bangladesh’s Grameen Bank, a leading advocate for the world’s poor that has lent more than $5.1 billion to 5.3 million people. The bank is built on Yunus’ conviction that poor people can be both reliable borrowers and avid entrepreneurs. It even includes a project called Struggling Members Programme that serves 55,000 beggars. Under Yunus, Grameen has spread the idea of microcredit throughout Bangladesh, southern Asia, and the rest of the developing world.
People see microfinance as a viable commercial activity that can increase access to investment capital for the working poor.
With Yunus’ experiment, millions of people around the world today have been liberated from economic slavery. Jobs have been created, families uplifted and standard of living improved remarkably.
According to Yunus, “At first, I didn’t think that what I did had any significance in a broader context.”
However, the scheme keeps expanding in scale, and Yunus has grown intimately familiar with the unbearable dimensions of global poverty. As many as 1.2 billion people around the planet lack access to basic necessities, he explains, and microfinance could be their pathway out of despair. In 1997, only about 7.6 million families had been served by microcredit worldwide, according to the 2005 State of the Microcredit Summit Campaign Report.
As of December 31, 2004, some 3,200 microcredit institutions reported reaching more than 92 million clients, according to the report. Almost 73 per cent of them were living in dire poverty at the time of their first loan. “Yunus and Grameen have taken a first step, which has inspired others to take a look at microfinance as a business,” says John Tucker, deputy director of the microfinance unit at the United Nations Capital Development Fund.
We get a lot of questions about this aspect of our work. Questions like does Microfinance really help? Are you sure this little amount can change lives? Luckily I found this article By Gbenga Ogunbufunmi ,Asst. Business Editor, Daily Independent Online that best describes the most powerful illustration of the impact of microcredit or microfinance banking by the man who started it all Dr. Muhammad Yunus of the Grameen Bank.
Microfinance banking (MfB) started as a concept to provide financial services to the world poor, those who by circumstances of not being rich are excluded from access to the conventional commercial banks and other financial institutions due to lack of collateral.
The concept presents series of exciting possibilities and opportunities for improved markets, reducing poverty and fostering social development among citizens.
Yunus’ objective was to offer the poor in that country financial services, entrepreneurship opportunities and an end to mistreatment by money-lenders, a system where they could produce, manage and maintain their own finances.
Yunus’ experiment in microfinance was in the granting of microcredit; that is, extending small loans to entrepreneurs who are too poor to qualify for conventional bank loans.
The advantages of microfinance are numerous. First, it is sustainable and creates independence from aid. Yunus believed that by giving small loan to an individual or group of people who cannot access credits from the conventional banks would give them the ability to work their own way out of poverty.
Secondly, it means that the money goes directly to the people who need it – bypassing the bureaucracy and corruption that can compromise traditional methods of charity.
Moreover, Microloans are never lent to individuals without first providing them with the expertise and training to build business plan that is likely to succeed, and such projects are even monitored.
Yunus’ interest in the scheme was aroused by the conditions of the poor in his country who, despite their entrepreneurial instinct, lacked the means of translating their desires into reality.
Thus, in 1974, Yunus led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learnt that she had to borrow the equivalent of 15 pence to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10 per cent a week, she was left with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level, Yunus thought.
Realising that there must be something terribly wrong with the economics he was teaching, Yunus took matters into his own hands, and from his own pocket lent $27 to 42 basket-weavers in nearby town of Jobra. He found that it was possible with this tiny amount not only to help them survive, but also to create the spark of personal initiative and enterprise necessary to pull themselves out of poverty.
Against the advice of banks and government, Yunus carried on giving out ‘microloans’, and in 1983 formed the Grameen Bank, meaning ‘village bank’ founded on principles of trust and solidarity.
In Bangladesh today, Grameen has 1,084 branches, with 12,500 staff serving 2.1 million borrowers in 37,000 villages.
Grameen methods are applied in projects in 58 countries, including the United States (U.S.), Canada, France, The Netherlands and Norway.
Today, Yunus runs Bangladesh’s Grameen Bank, a leading advocate for the world’s poor that has lent more than $5.1 billion to 5.3 million people. The bank is built on Yunus’ conviction that poor people can be both reliable borrowers and avid entrepreneurs. It even includes a project called Struggling Members Programme that serves 55,000 beggars. Under Yunus, Grameen has spread the idea of microcredit throughout Bangladesh, southern Asia, and the rest of the developing world.
People see microfinance as a viable commercial activity that can increase access to investment capital for the working poor.
With Yunus’ experiment, millions of people around the world today have been liberated from economic slavery. Jobs have been created, families uplifted and standard of living improved remarkably.
According to Yunus, “At first, I didn’t think that what I did had any significance in a broader context.”
However, the scheme keeps expanding in scale, and Yunus has grown intimately familiar with the unbearable dimensions of global poverty. As many as 1.2 billion people around the planet lack access to basic necessities, he explains, and microfinance could be their pathway out of despair. In 1997, only about 7.6 million families had been served by microcredit worldwide, according to the 2005 State of the Microcredit Summit Campaign Report.
As of December 31, 2004, some 3,200 microcredit institutions reported reaching more than 92 million clients, according to the report. Almost 73 per cent of them were living in dire poverty at the time of their first loan. “Yunus and Grameen have taken a first step, which has inspired others to take a look at microfinance as a business,” says John Tucker, deputy director of the microfinance unit at the United Nations Capital Development Fund.
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