Real-world examples of innovative microfinance institutions are a source of great inspiration. It is through microfinance that many of the poor and underserved have been able to break through the poverty barrier and servicing these clients remains at the heart of microfinance. But where did this idea originate?
The origin of microfinance is often credited to Dr. Muhammad Yunus who established the Grameen Bank in Bangladesh. Dr. Yunus first recognised the need for appropriate banking services when he began visiting the poorest households in Jobra in 1976. He realized that while larger banks were uninterested in servicing this demographic, banking services could provide both empowerment and possibilities for the poor that could eventually lift entire communities out of poverty and thus benefit humanity as a whole. The very first set of micro loans totalled US$27 and were given to 42 women in the Jobra community. These loans made a profit of US$0.50 a piece which Yunus considered a great success and proof that such loans were profitable and potentially life changing.
In 1983, with 28,000 members, Yunus formally established Grameen (Village) Bank. Between 1983 and 2007, Grameen Bank issued loans totaling 6.38 billion to 7.4 million borrowers. Grameen Bank loans money to groups known as “solidarity groups” with each member acting as co-guarantor with the other members. In this way, Grameen Bank was able overcome the high risk of default generally associated with this demographic while also providing a path to a more secure future for its members.
So revolutionary and innovative was Yunus’ contribution to the world that he was awarded the Nobel Peace Prize in 2006. The Norwegian Nobel Committee noted “across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development”.
That is the sentiment that remains at the heart of microfinance today, a sentiment proven by experience and inextricable from the history of the institution. This sentiment continues to inspire new efforts in microfinance so that, with dignity, others may find their way to true financial freedom.