Microfinance

… a core concept in Macroeconomic Policy and Atlas103M

Muhammad Yanus, microfinance pioneer with Grameen Bank

Concept description

Investopedia (reference below) defines microfinance, also called microcredit, as “a type of banking service that is provided to unemployed or low-income individuals or groups who otherwise have no other access to financial services.”

Investopedia goes on to say:

“While institutions participating in the area of microfinance are most often associated with lending (microloans can be anywhere from $100 to $25,000), many offer additional services, including bank accounts and micro-insurance products, and provide financial and business education. Ultimately, the goal of microfinance is to give impoverished people an opportunity to become self-sufficient.”

One of the pioneers of the microfinance model is Grameen Bank (reference below) which describes its role as follows:

“Grameen Bank (GB) has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity. GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At GB, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the over all development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. Professor Muhammad Yunus, the founder of Grameen Bank reasoned that if financial resources can be made available to the poor people on terms and conditions that are appropriate and reasonable, ‘these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.'”

Sources

Investopedia, Microfinance, at https://www.investopedia.com/terms/m/microfinance.asp, accessed 12 May 2018.

Grameen Bank, Introduction, at http://www.grameen.com/introduction/, accessed 12 May 2018.

Topic, subject and Atlas course

Growth, Capital Accumulation, and the Financial System (core topic) in Macroeconomic Policy. and Atlas103M.

Page created by: Alec Wreford, last modified by Ian Clark, 12 May 2018.

Image: Grameen Bank, at http://www.grameen.com/founder-2/, accessed 12 May 2018.