Mohammad Yunus

Microfinance:Mohammad Yunus

What is Microfinance?

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?

Microcredit can be 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.

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

Banker to the poor: Mohammad Yunus in an Interview: http://www.youtube.com/watch?v=YxpTFwQx-A8

Conclusion

Sources