Microfinance: Origin and History

Microcredit–today we called that microfinance– has been there for a very long time when people started to borrow small amount of capital to use on something, may it be, productive or unproductive.

Muhammad Yunus and the Microenterprising Women

The way of putting some amount of capital you borrowed from somebody to an activity that produces results is microcredit or microfinancing.

But, when and where this concept of microfinancing started?

That is hard to tell. But, you may want to read something about it below as a start for now.

Recorded History of Microfinance

Some references traced back the history of microfinancing in the middle of the 1800s when the theorist Lysander Spooner was writing over the benefits of small loans to entrepreneurs and farmers as a way of getting some people out of poverty.

But it was only at the end of World War II that the concept had a big impact.

The word ‘microfinancing’ today has its roots in 1970s when some organizations started to engage actively in giving microloans to some pre-qualified people. One of the prominent organizations that institutionalized the word ‘microfinance’  was Grameen Bank of Bangladesh grounded by the man we called ‘microfinance pioneer’, Muhammad Yunus.

There are also some claims attributed to Akhtar Hameed Khan who promoted participatory rural development in Pakistan.

During the 1970s, there were so many programs–that were focused on poor people– showing that people can be relied on to repay their loans and that it was possible to provide financial services–through an enterprise–to some poor people without even having subsidies.

Microcredit also could be traced back to Friedrich Wilhelm Raiffeisen‘s village bank in Germany which he started in 1864. This bank is generally known today as Raiffeisen Bank.

Timothy Guinnane, a Yale University scholar, asserted that by 1901–while studying the Raiffeisen’s model–microcredit is effective in helping the poor and could withstand two tests concerning payback moral and the possibility of providing financial services to poor people. (wikipedia.org)

Some records also pointed to the caisse populaire movement of Alphone and Dorimène Desjardins in Quebec, Canada. The credit union concept is traced to them. Today, we called that movement as ‘cooperative movement’. (This will be a separate topic later.)

Today, there are more than 7000 microfinance institutions all over the world. And there are also more than half a billion families benefited or are benefiting from these small loans provisions.

As a result of Yunus pioneering work, he was awarded a Nobel Peace Prize in 2006.

Indeed, microfinance has been proven as a tool in alleviating poverty.

Take part and this small step can lead you to making greater impact in changing and saving lives with the poor people.

So long,

Florentino

Image:

Muhammad Yunus visits Grameen Bank Centers and loan holders, who are mostly women. Copyright © Grameen Bank Audio Visual Unit, 2006