Mohammad Yunus: Difference between revisions
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==Mohammad Yunus== | ==Mohammad Yunus== | ||
The most famous successful application of microcredit can be attributed to Dr. Muhammad Yunus, a Bangladeshi banker and economist. In 1974, Yunus led a group of students on a field trip to a poor village in Chittagong district. There they interviewed a young woman with three children who made bamboo stools for a living. They learnt that she had to borrow the equivalent of 22 cents to buy raw bamboo for the stools she made and that after repaying the middleman, she made a profit of just 2 cents. Yunus immediately felt something was wrong. “How can somebody who makes such beautiful bamboo stools live under such abject poverty?” he thought. He knew that if only she could borrow money for her raw bamboo at a fairer rate, she would not have much difficulty to amass enough money to break the cycle of poverty and raise her family above the subsistence level. But the existing economic system made that almost impossible. The banking system was extremely unfriendly to the poor and illiterate. Under that system, the poor would never be able to save and invest in expanding their economic base. They would always be condemned to live a life of poverty, of hand-to-mouth survival. And all this because they did not have a tiny amount of money to get started. This knowledge shocked Yunus. He felt theorizing about millions of dollars in his university courses was futile if for lots of people, the problems of life and death were posed in terms or cents. He was angry, angry at himself, at the economics department and thousands of other wise people who had ignored this problem. He had never heard of people suffering for lack of 22 cents. As a first attempt to help the poor, Yunus lent the equivalent of $17 from his own pocket to 42 women in Chittagong district. He did not have to wait long for the result to appear. He soon found out that with a small amount of money it was possible not only to help the poor survive, but also to create the spark of initiative and enterprise required to bring themselves out of the cycle of poverty for good. | |||
Going against the advice of banks and the government, Yunus kept on lending micro-loans, and in 1983 founded the Grameen Bank. This bank, which simply means “The village bank” | |||
Revision as of 01:07, 30 April 2008
Microfinance:Mohammad Yunus
What is Microfinance?
According to The Economist, microfinance has a broad range of definitions. It could mean anything from the alms provided by a priest to the services provided by the state banks and the credit unions to their poor clients. One of the definitions appropriate for our project is the different kinds of financial services like insurance, deposit accounts and loans provided to individuals and households with low income and poor. The aspect of microfinance which differentiates it from other kinds of financial services is that no collateral is required as a security for a loan. Reputation is the basis on which money is provided. Many countries in the developing world do not have a formal system of property rights and this prevents them from providing proper collateral. Therefore, traditional financial services cannot be provided to the poor in these countries making microfinance incredibly invaluable. Without microfinance, the only way for the poor to procure loans would be to seek the services of the money lenders who many end up charging them an exorbitant fee and exploit the clients who may not be able to repay the loan on time.
What is Micro-credit?
Microfinance refers to the financial products like loans, savings, insurance and transfer services which are aimed at low-income people while microcredit is defined as the small loans made by a bank or other such institution to its poor clients. It is often offered without any collateral through group lending. Microcredit focuses on the building capabilities of a micro entrepreneur, employment generation, trust building, and assistance to the micro entrepreneur on initiation and during difficult times. Its an instrument for socioeconomic development.
History of Microfinance and Microcredit
Microfinance started in an informal manner during the 18th and the 19th century in numerous European countries. From the very beginning, microfinance was a form of intermediation between microsavings and microcredit. Slowly, over a period of time, regulations, recognition and mandatory management evolved. Finally, during the 20th century it became a part of the banking sector. In Asia, microfinance seems to have a longer history. However, there is not much information about the chit funds in India, hui in China, arisan in Indonesia or the paluwagan in the Philippines. In the financial sector development, the financial institution which have indigenous origin have been mostly ignored. The chit funds of India which are supervised and the highly diversified rural and microfinance sector are two exceptions. Microcredit revolution came into play in 1970's since the poor were catered by unsupervised cooperatives and credit NGO's. The whole concept of providing credit to the poor is credited to Dr. Akhtar Hameed Khan, founder of the Pakistan Academy for Rural Development and pioneer of the idea of microcredit.
Mohammad Yunus
The most famous successful application of microcredit can be attributed to Dr. Muhammad Yunus, a Bangladeshi banker and economist. In 1974, Yunus led a group of students on a field trip to a poor village in Chittagong district. There they interviewed a young woman with three children who made bamboo stools for a living. They learnt that she had to borrow the equivalent of 22 cents to buy raw bamboo for the stools she made and that after repaying the middleman, she made a profit of just 2 cents. Yunus immediately felt something was wrong. “How can somebody who makes such beautiful bamboo stools live under such abject poverty?” he thought. He knew that if only she could borrow money for her raw bamboo at a fairer rate, she would not have much difficulty to amass enough money to break the cycle of poverty and raise her family above the subsistence level. But the existing economic system made that almost impossible. The banking system was extremely unfriendly to the poor and illiterate. Under that system, the poor would never be able to save and invest in expanding their economic base. They would always be condemned to live a life of poverty, of hand-to-mouth survival. And all this because they did not have a tiny amount of money to get started. This knowledge shocked Yunus. He felt theorizing about millions of dollars in his university courses was futile if for lots of people, the problems of life and death were posed in terms or cents. He was angry, angry at himself, at the economics department and thousands of other wise people who had ignored this problem. He had never heard of people suffering for lack of 22 cents. As a first attempt to help the poor, Yunus lent the equivalent of $17 from his own pocket to 42 women in Chittagong district. He did not have to wait long for the result to appear. He soon found out that with a small amount of money it was possible not only to help the poor survive, but also to create the spark of initiative and enterprise required to bring themselves out of the cycle of poverty for good.
Going against the advice of banks and the government, Yunus kept on lending micro-loans, and in 1983 founded the Grameen Bank. This bank, which simply means “The village bank”
Banker to the poor: Mohammad Yunus in an Interview: http://www.youtube.com/watch?v=YxpTFwQx-A8
Conclusion
Sources
