A brief history of microfinance

The first microfinance program began in the developing world in the early 1960s’ and emerged in the United States in the early 1980s. The U.S. microfinance movement was influenced by the women’s movement and is an integral part of the community economic development movement [1].Governor of Arkansas, Bill Clinton supported the Good Faith Fund, one of the early U.S. microenterprise programs. As president, he emphasized the reform of welfare laws and economic self-sufficiency and created a new branch of the U.S. Department of Treasury called the Community Development Financial Institution Fund. It funds microenterprise development and other community banking efforts. Microbusiness development markets for capital growth. Today, more than 750 organizations in the United States are providing micro loans. Many of the early micro loan programs in the United States, such as Women’s Imitative for Self- Employment and focused on women, who remain the primary borrower [2].

Micro finance for the upliftment of women

Gender equality advocates have also recognized the importance of the microfinance industry. In 1994, Women’s World Banking and Organization dedicated to helping low income women entrepreneurship by expanding their access to financial services, invited income women leaders to form the United Nation (UN) Expert Group on Women and Finances. It is reported that this meeting contributed to the UN’s 1996 Women’s Conference in Beijing, the UN Capital Development Fund, and the UN Department of Economics and Social Affairs. Contributions from the UN Expert group on Women and Finances have been used by many reactionaries and policy makers in many countries” to build policies, systems and services that work [3]”.

Micro enterprise development organization (MDO)

Microfinance services are provided by banks, credit unions, and microfinance organizations, which are also known as micro enterprise development organization (MDO). These are generally for-profit and nonprofit or nongovernmental organizations (NGOs), private voluntary organizations legally chartered, where necessary, to lend money to poor people. Micro enterprise development organisations such as ACCION International were started in the early 1960s. Others such as the Grameen Bank, began in the 1970s’ when its founder, Mohammad Yunus, an economics professor in Bangladesh, began lending small amounts of money to poor people. These small loans were used to start or expand small enterprises, such as vegetables farming, weaving, and livestock holding [4]. The world attention was focused on microfinance when Yunus and the Grameen Bank won the Nobel Peace Prize in 2006 [5]. Funding for MFIs is provided by international finance institutions such as the World Bank, UN agencies and the international Fund for Agricultural Development [6].

Funding to microfinance institutes

A number of MFIs’ including the Grameen Bank, the Bangladesh Rural Advanced committee, the Vietnam Bank of Agriculture and Cajalos Social in Columbia are serving more than 1 million clients. Seventy percent of all foreign investment in microfinance is with regulated financial institutions and 60% of it among 10 MFIs, including Bancosol and Cajalos Andes in Bolivia, Comparators in Mexico, Banco de Solidario in Eduador,and Confinaza. These MFIs tend to serve what is called “upper layer of the pyramid” as opposed to the poorest of the poor.

Microfinance, now clearly a worldwide movement, is embraced by governments, corporations, banks, development agencies, business communities, civil societies, and philanthropists. Although the exact scale of the microfinance industry is imperfect because of incomplete data and self-reporting, several data sources shed some light on the industry. For example, the states of microcredit institutions have reported reaching 92, 270, 289 clients, 66, 614, 871 of whom were among the poorest when they took their first loan. Of these poorest clients, 83.5 percent, or 55, 622, 406 are women.” The “poorest” are defined as persons living below their nation’s poverty line or living on less than one U.S. dollar per day, estimated at 1.2 billion people.

References

  • U.S. general Accounting Office (GAO). 2003. Report to the Chairman, Committee on International program has Met some Goals; Annual reporting Has Limitations. Washington, DC: U.S. general accounting office.
  • Jones, Susan R. 2004. “Supporting Urban Entrepreneurs: law, policy & the role of Lawyers in small Business Development. “Western New England law review 30: 71-91.
  • Sachs J D (2005), The end of poverty, Allen Lane, New Delhi.
  • Smith, Stephen C. 2005. Ending Global Poverty. 75-76. New York: Palgrave Mac Milan.
  • Jones S R (2006), Legal guide to microenterprise development, American Bar Association, USA.
  • Yunus, Muhammad, 2003. Banker to the poor; Micro-Lending and the Battle agins world poverty New York: Public Affairs.

Priya Chetty

Partner at Project Guru
Priya is a master in business administration with majors in marketing and finance. She is fluent with data modelling, time series analysis, various regression models, forecasting and interpretation of the data. She has assisted data scientists, corporates, scholars in the field of finance, banking, economics and marketing.

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