Microfinance
What is it?
Microfinance is the practice of making small loans, or microcredits, to low-income entrepreneurs to start new businesses or expand existing ones. This allows them to accumulate wealth sustainability, increasing their options and reducing the uncertainty and risks they face daily. Over time, the term microfinance has grown to encompass a broader range of financial services for the poor, such as savings accounts and insurance.
The Impact
Many would-be entrepreneurs in developing countries do not have access to credit through formal channels such as banks, because they do not have anything to put up as collateral and the amounts they require are too small for banks to be interested. Instead, they must rely on informal financial arrangements with moneylenders, who charge extremely high interest rates and prevent the poor from accumulating savings. Microfinance extends credit to these entrepreneurs at reasonable interest rates without requiring any collateral.
Traditional assumptions that it is too risky to lend to poor borrowers without any collateral have been challenged by the astonishing success of microfinance, which boasts a repayment rate of 97% (United Nations Capital Development Fund). Microfinance institutions support the success of their entrepreneurs with innovative strategies such as using a weekly or daily repayment schedule and requiring entrepreneurs to form borrowing circles for support.
Beginnings...
Microfinance was made famous by Grameen Bank founder and Nobel Laureate Muhammad Yunus. Yunus made an initial $27 loan to a group of 42 Bangladeshi women in Jobra, the village near Chittagong University where he taught Economics. From the beginning, Yunus did not demand collateral from any of his clients. The Grameen Bank was established in 1983 and has grown to provide over 6.3 billion dollars total to 7.2 million borrowers, with a repayment rate of 98.6%. Grameen has been a leading example to microfinance institutions all over the world. Today, more than 250 institutions in nearly 100 countries operate microcredit programs based on the Grameen methodology.
The main concept behind microfinance is that each individual has the potential for great success, and the contributions of each individual can bring us one step closer to ending poverty. As Yunus says, "Unleashing of energy and creativity in each human being is the answer to poverty."
For more information, visit:
http://www.grameenfoundation.org/what_we_do/microfinance_in_action/faqs/
http://www.microfinancegateway.com/section/faq#Q14
Gumballs and Microfinance?
Gumball Capital supports microfinance through the Gumball Challenge. Every dollar raised through the competition will be donated to microfinance-related causes chosen by competitor teams.
Microfinance!
Alleviating poverty
by providing
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to the poor.
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