DATE: 2/05/08 (REV’D 1/30/09)
This is not charity. This is business: business with a social objective, which is to help people get out of poverty.
—Muhammad Yunus, Founder and CEO, Grameen Bank
Jessica Jackley Flannery, the cofounder and chief marketing officer at Kiva.org (Kiva), an online microfinance nonprofit, stepped into her car after a long day of meetings and media appearances. It was an exciting and busy time. Kiva was growing exponentially and receiving an unprecedented degree of positive press and user feedback. In the midst of the whirlwind, Flannery appreciated having a few minutes of downtime to reflect on how far her organization had come, as well as how to best shape it for continued success and impact. GLOBAL MICROFINANCE1
Microfinance is the supply of basic financial services to the poor, including loans, credit, savings, insurance and transfer services. The formal financial sector has not traditionally been accessible to the impoverished entrepreneurs who comprise most of the world’s working population. Instead, informal systems and relationships, including loans from neighbors or relatives, and rotating savings/ credit clubs, have filled this gap. While such solutions have worked for some and are often the only option available, they can be inconsistent and unreliable during times of tremendous need. In addition, poor entrepreneurs can become trapped in vicious cycles of borrowing from local moneylenders, who may demand exorbitant interest rates. Traditionally, banks were unwilling to provide loans to poor entrepreneurs due to the perceived risk. Common concerns included the fact that the unbanked were often illiterate, had no collateral, no prior credit history, and were not employed by anyone other than themselves. However, in 1976, Muhammad Yunus, seen by many as the visionary behind the microfinance movement, bucked conventional wisdom and loaned the equivalent of $27 of his own money to 1
This section is excerpted and modified from the Stanford GSB case: Equity Bank (A), case no. E-260. Bethany Coates prepared this case under the supervision of Professor Garth Saloner as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2008 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: email@example.com or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.
some poor craftsmen in Jobra, Bangladesh. After all of the borrowers repaid, he repeated the experiment with more villages, and over the years, grew his series of experiments into a multibillion dollar bank that has provided small loans to over 5 million people worldwide. Years later, Yunus noted, “At Grameen, we don’t have any legal instrument between the lender and the borrower…. Everybody asks, ‘What will happen if nobody pays back?’ I say, ‘But everybody pays back, so why should I worry about that?’”2 Grameen Bank charged 20 percent interest and reinvested all but 10 percent of earnings back into its operations. As Grameen grew, other leading microfinance institutions (MFIs), including ACCION International and Opportunity International, began to emerge and based their work on the same bold ideas as Yunus: that the poor could reliably repay their loans, with interest, and could use the profits to grow their businesses. Mission-driven, nonprofit...
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