Importance Of Microfinance To Poor People
Along with 3 other pillars of development-democracy, education and infrastructures-Microfinance is increasingly considered a key instrument in implementing effective and sustainable strategies in the fight against poverty, Jacques Attali, President of Positive Planet.
Microfinance is poorly understood and it remains unclear in some countries.
The goal of this chapter is to introduce the topic of Microfinance and to identify the opportunities of Microfinance to poor people.
2.2 Definition of Microfinance
Microfinance is a term to describe small loans given to low income individuals that are not included in the traditional banking system to help them work in productive activities or to develop their own small business.
Microfinance industries
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2.3 Characteristics of Microfinance
In general, banks are for poor people with money, not for people without, Gert Van Maaneen, Microcredit: Sound Business or Development Instrument, Oikocredit, 2004.
Microfinance is an innovation for the developing countries. It is a service for poor people that are unemployed, entrepreneurs who are not bankable.
The characteristics of microfinance products according to "Murray U and Boros R"(2002) are:
Little amounts of savings and loans/Short-term
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Instead of collateral, banks and microfinance institutions use other methods like the assessments of clients' repayment by running cash flow analysis, which is based on the steam of cash flows, generated by the activities for which loans are taken.
2.4 History of Microfinance
Mohammad Yunus-Financial Innovator
Microfinance has existed in various forms for centuries.
The story of Microfinance began in the mid1970s in a rural country in Bangladesh when a Professor of Economics at the University of Chitagong "Dr. Mohammad Yunus" was studying why the theories of economics failed to explain why so many poor people were starving in Bangladesh, he noticed that poor people in the village of Jobra had no access to credit.
He hypothesized that small loans might take a big difference and decided to test his theory with the money in his pocket.
A 27 Dollar Loan
He found in 1976, a group of 42 villages who made bamboo stools. Because they lacked the money to purchase the raw materials he lend them only 27$ from his own pocket at zero interest, enabling the women to sell their stools for a reasonable price.
After the success of the 1st experiment, Yunus founded Grameen bank in Bangladesh. Over the years, Grameen has become the best known microfinance bank in the
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