Microfinance Movement Grows at Impressive Rate
Success of Microloans Stands in Contrast to Financial Turmoil
Jan 29, 2009
The movement of microfinance does very well, even in these financially troubled times. Grameen Bank, founded by economist Dr. Muhammad Yunus in 1976, has made what could be called sub-prime mortgage loans to some of the poorest people in the world. But they have done it the right way. In order to qualify a borrower has to successfully repay three self employment loans.
"Whatever Banks Did, I Did the Opposite"
Microfinance - "Banking for the Unbanked"- is deeply egalitarian, but it had to break many rules of banking just to exist. Lending is based on trust. In the summer of 2008 and during the continuing world wide banking crisis even the strongest believers in the financial system found out that this trust has been abused.
Asked about his strategy that led him to start the microfinance process, Muhammad Yunus answers, "when I look back my strategy was, that I did the opposite. If banks lent to the rich, I lent to the poor. If banks lent to men, I lent to women. If banks paid large loans, I made small ones. If banks required collateral, my loans were collateral free. If banks required a lot of paperwork, my loans were illiterate-friendly." (Excerpt from Creating a World Without Poverty, 2008)
The Microcredit Summit Campaign
Microcredit practitioners from around the world gather at the Microcredit Summit organized by the RESULTS Educational Fund under Sam Daley-Harris. The story of this global organization offers a good way of tracing the development and growth of the microcredit movement. The first Microcredit Summit, held February 2-4, 1997, gathered more than 2,900 people from 137 countries in Washington, DC. They launched a nine-year campaign to reach 100 million of the world’s poorest families. The goal seemed more than audacious at the time. In 1997 there were fewer than 8 million poor families who received microloans.
100 Million of the World's Poorest Reached With Microcredit
This week (1/26/2009) Sam Daley-Harris announced in New York City that in 2007 the Microcredit Summit surpassed its goal of reaching 100 million of the world's poorest families with microloans. It has taken most of 2008 for the group to collect and process the data.
The core themes of the Microcredit Summit Campaign are:
- Reaching the poorest families, i.e. the bottom 50% of those living below their country’s poverty line or those living on less than $1 a day
- Reaching and empowering women since women are responsible for their children
- Building financially self-sufficient institutions - Nongovernmental Organizations (NGO's) partner with microcredit practitioners and provide social services
- Ensuring a positive, measurable impact on the lives of clients and their families
Microlending and the Financial Crisis of 2008
The success of the microlending model is impressive: 700,000 mortgages have been issued with a near-zero default rate. The approach seems counterintuitive, since subprime loans triggered the cascade of financial failures that started the recent economic downturn. Grameen Bank was financially stable during the year 2008. Its borrower repayment rate is near 100 percent. Grameen America, which started making loans in Queens, N.Y. in 2008, has a 99.5 percent repayment rate. Customers of Grameen America must demonstrate a pattern of limited savings as part of their qualification for loans. Muhammad Yunus envisions that the practice of microlending can become an integral part of the mainstream financial system.
For further reading:
- Creating A World Without Poverty (Review of Muhammad Yunus' latest book.)
- Consultative Group to Assist the Poor: www.cgap.org
- Download the Microcredit Summit Report at The Microcredit Summit Campaign's website.
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