HISTORY OF MICROFINANCE

A cura di Alice Ciochetta, 5RA

What is microfinance?

Microfinance is a very new and “community friendly” bank service that consists in the provision of small loans to poor people who have no collateral or credit history (for example they don’t have a bank account). Clients can use the money to establish or expand a micro-business like small retail shops, street vending or artisan manufactures, but the most striking advantage of microfinancing is that as each loan is repaid, the money is recycled as another loan in order to create an automatic circle of reinvestments.

The Grameen Bank

One of the most important examples of microfinance is the Grameen Bank founded by Professor Muhammad Yunus in 1976 during a devastating famine in Bangladesh. The idea was to found a bank system in villages (Grameen means rural or village in Bangla language) while normal banks are located in the city center, but this is not the only difference between these two types of financial institutions; Professor Yunus preferred to give loans to people who have no collaterals, especially to women because they are trustworthy, they care about their family and they would never throw the loan away and furthermore his bank doesn’t need also any lawyer because one of the main keys of his financial system is transparency.

How the Grameen Bank works

This idea was based on the conviction of the Professor that all human people are entrepreneurs, he gave money to beggars and rebuilt self confidence in them, while begging they could have offered to people small toys, candies or cookies, creating a simple and fundamental entrepreneurship; even some of them became personal shoppers for rich people. Professor Yunus said that poverty is created by the system, our system, and he called the beggars “bonsai people” because they are not given enough space to grow and they are suffocated by society.

Social businesses

The founder also introduced a new way of doing business called “social business” where the main goal is to create a company to solve a problem and the most important element is the impact of it on the community for which we can change people’s lives and not make money from it. An example of social business is the one created with DANONE, a French food company. Professor Yunus spoke clearly with the CEO of the company, he would not have made a profit, but he would have helped thousands of Bangladeshi children suffering from malnutrition, so they created and distributed yogurt with micronutrients to fight this problem. In conclusion, microfinance and especially the Grameen Bank are helping the community to grow and prosper, giving the opportunity to disadvantaged people to make their contribution in the society system.