General Microcredit History

pastrocch The term microcredit is thought of as a fairly modern term which originated in impoverished/developing countries. Its initial and main purpose, which applies to this day, is to enable the poor, mostly women, to start a new life. Interestingly enough, the majority of microcredit loans are given out to Muslims. Many consider it as having begun in the 1970, when Muhammad Yanus started the first Grameen Bank and when a student organization in Recife, Brazil, started issuing microloans to later form ACCION International. Even though the term microcredit originated during this time period, the concept of issuing microloans to poor households has a thousand year history. For centuries microcredit has been a huge help to poor households trying to get a new start at their financial lives. Years earlier, billions of poor households were serviced by informal financial mechanisms such as “moneylenders, loan sharks, pawnshops, saving and loan clubs,” and relatives. Some time after World War II, various economic development initiatives were geared toward providing credit to farmers (www.kbyutv.org). These loans were highly dependent on the success of crops, which in turn rely on the weather. Due to the high risk dependent on weather, the repayment rates on these loans were not always high. It was not until the 1970’s that microcredit became a popular means of extending small loans to the poor who lacked the opportunity of receiving regular bank loans. Microcredit has been of a lot of help to millions of poor families who needed an extra inflow of cash to get economically started with their lives. In fact, “one hundred million of the world’s poorest families are less destitute today because they received microloans that allowed them to improve their economic situations” (Varner). Since microcredit loans have become popular among the poor, about three decades ago, the amount of loans being given out has increased by 20 percent. This is equivalent to 100 million people out of 500 million people in the world, who are considered to be on the verge of poverty. It is estimated that by the year 2015, microlending will increase to 175 million families. A great boost toward this goal will be given by the Bill & Melinda Gates foundation, which is planning to aim more of its charity toward microlending. So far, there are an estimated 3,000 microcredit banks worldwide. Today, organizations such as Bangladesh Academy for Rural Development, Opportunity International, ACCION International, Grameen Bank (whose founder Muhammad Yunus was awarded the Nobel Peace Prize in 2006), Women’s World Banking, and FINCA International, among others are top lenders in the microfinance industry.

Key Microcredit Organizations

Bangladesh (formerly East Pakistan) Academy for Rural Development

It was founded by Dr. Akhter Hameed Khan in 1959. One of his projects, the Comilla Cooperative Pilot Project, is considered to be a model of microcredit and rural development initiatives in developing countries.

Opportunity International

Al Whittaker resigned as president of Bristol Meyers in 1971 to found Opportunity International’s first office in Washington DC. He made his first loan to Carlos Moreno in Colombia – it was cited as the first microloan in The Economist. Al Whittaker joined David Bussau, who was giving out microloans in Indonesia, to make Opportunity International a global organization. Nowadays they operate in various countries providing opportunities for the poor by issuing microloans.

ACCION International

ACCION International started out as an organization which helped build infrastructure projects for poor people. In 1973 they shifted their focus to providing financial opportunities to poor people by issuing microcredit loans. Within four years of their focus on microcredit loans, ACCION International had provided 885 loans with a repayment rate of more than 90%. The loans helped to stabilize 1,386 new jobs. The company has expanded its business to countries in South and Central America, the United States, Africa, and India.

Grameen Bank

In 1974 Muhammad Yunus discovered that a very small sum of money could make a big difference in a poor person’s life. Unfortunately, regular banks would not undertake such a high risk of lending money to the poor. In turn, Yunus founded the Grameen Bank in 1976. By the end of 2005, the Grameen Bank had issued more than $5 million to millions of people.

Women’s World Banking

Women’s World Banking was founded in 1976 by Ela Bhatt, Esther Ocloo, and Michaela Walsh. Women’s World Banking, headquartered in New York City, reported in 2002 that half of the microcredit loans made worldwide were issued by them, out of which three quarters were to women.

FINCA International

FINCA International was founded by John Hatch in the 1980s. The idea of the organization was to help out the poor communities and then to get out of their way. The program started in Bolivia, later moved on to El Salvador, and now operates in 21 countries in Africa, Latin America and the Caribbean, Eastern Europe and Central Asia. Women make up 80 percent of their loan clients and the loan repayment rate is 97 percent. By 2005, FINCA International reached out to more than 400,000 clients providing more than $100 million in small loans which average $360 each.

Sources used:

http://en.wikipedia.org/wiki/Microcredit

http://www.grameen-info.org/mcredit/

www.kbyutv.org

Lynne Varner, The Seattle Times, Microcredit: Giving the Poor a Choice

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General Microcredit History | Historical Precedent | Models | Critiques of Microcredit | Benefits of Microcredit | Success Stories | Microcredit Summit Campaign | Conclusion | For More Information