Microcredit

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  • Topic: Poverty, Microfinance, Muhammad Yunus
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  • Published : April 14, 2013
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The Future Of Microfinance
By
Abul Fatah Al Faruk
Id: 2010-3-30-017
&
Md.Wasek Rashid Choudhury
Id: 2009-1-10-171

Course: Eco101 (Introduction to Microeconomics)

Submitted to
Muhammad Mahboob Ali, Ph.D.
Adjunct Faculty
East west university
Email: pipulbd@gmail.com

Date: / /2013

Introduction:
Microcredit is the extension of very small loans (microloans) to impoverished borrowers who typically lack collateral, steady employment and a verifiable credit history. It is designed not only to support entrepreneurship and alleviate poverty, but also in many cases to empower women and uplift entire communities by extension. In many communities worldwide, in developed and developing nations alike, women lack the highly stable employment histories that traditional lenders tend to require. This reality might result from factors such as leaving the paid workforce to care for children and elderly relatives. As of 2009 an estimated 74 million men and women held microloans that totalled US$38 billion. Grameen Bank reports that repayment success rates are between 95 and 98 per cent.

Microfinance has gradually developed to be a worldwide movement, no longer being a subject matter of microfinance practitioners alone. Governments, donors, development agencies, banks, foundations, corporations, business communities, civil societies, researchers, universities, consultants, philanthropists and others are taking an increasing interest in it.

The increasing level of acceptance of microfinance among the various groups of stakeholders worldwide presents the following questions:

Is microfinance (MF) becoming popular because it is a good business to make money? Or
Is it because MF is a powerful tool to fight poverty? Or
Is it because of both?

Since the concept was born in Bangladesh almost three decades ago, microfinance has proved its value, in many countries, as a weapon against poverty and hunger. It really can change people’s lives for the better, especially the lives of those who need it most. The experiences of many microfinance institutions so far strongly suggests that it is possible for the institutions to reach the goal of serving people in extreme poverty without having to sacrifice their profitability. This is mostly because microfinance is designed with the poor in mind, while at the same time being founded on market principles of competitiveness, pricing and sustainability. There is nothing wrong in earning money while serving the poor, as long as earning money does not become the prime or the only goal of microfinance providers. Microfinance institutions throughout the developing world are providing small loans to the poor for self-employment and proving to be sustainable enterprises in the fight against poverty.

A very important but often sidelined issue that is impressively incorporated in microfinance is the neglect of the human rights of the poor. Muhammad Yunus, the Founder of Grameen Bank, believes that credit is a human right. Every person has the right to credit to improve her/his livelihood. Once this right is established, the entitlement to other rights becomes easier. It empowers the poor to break the vicious cycle of poverty by opening the door for self-employment and generation of income. For women, self-employment makes even more sense because it allows them to work out of their homes and earn a better living.

It is known that poor people live at high risk and in vulnerable conditions. For this reason, the ability to take advantage of opportunities to protect themselves against risks of crises, and to cope with these, is very important for them. A big step towards eliminating poverty is therefore to make sure that financial services are offered even to the poorest person and that no one is rejected or excluded on the grounds that the person is too poor.

Microcredit Summit Campaign: Phase II Goals
In April 2005, the Microcredit Summit Campaign announced the extension of...
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