Microfinance

History

Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. The objective is a world where impoverished households have access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.

Banks have little recourse against defaulting borrowers when they have few assets that can be secured as collateral. Historically, poor people borrow from relatives or a local moneylender who charges high interest rates. Member-owned organisations, such as self-help groups, can offer convenience and flexibility at much lower operational costs than formal fianancial institutions.

 

Microcredit, the lending of small loans, was first popularised in Bangladesh by Muhammad Yunus who is widely credited as the "Father of Microfinance". In 2006 Mr. Yunus and the Grameen Bank (the orgnanisation he established) were jointly awarded the Nobel Peace Prize for their efforts to create economic and social development from the bottom-up. South Asia has been a beacon of hope that microfinance may be a viable means of addressing poverty. With the highest concentration of clients accounts -188 million accounts, representing 18% of the total population- India can be a great example of hope for other nations.

 

How can microfinance stimulate local development?

When microcredit is disbursed to people seeking to establish new businesses, it can stimulate the entire community. If the members of the community are willing to pay for the new service or product available to them, then the entrepreneur will be successful and the community socially uplifted.

 

 

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Source: Wikipedia