What is microlending? In simplest terms microlending is the lending of very small amounts of money at low interest, to low income people in urban and rural areas. It started forty years ago, when a person named Muhammad Yunus was visiting his family and his country Bangladesh which had recently become an independent country. Muhammad Yunus had left his home country then –East Bengal- when he was a child with his parents in search of a better future. He graduated from Vanderbilt University in Nashville, Tennessee, with a PhD in economics. Muhammad Yunus is the founder of Grameen Bank, the first non-profit organization to offer microfinance services in Bangladesh and in the world (New York Times). This bank showed the world on how little money can make a tremendous difference in people’s lives. Presently, there are thousands of institutions around the world that offer microfinance services, which sometimes suffer setbacks and uncertainties as any other for-profit or non-profit organization.
When Muhammad Yunus was in Bangladesh, he realized that Bangladeshis were living in a more precarious condition than he had imagined and read on the newspapers. Many people owed money to these ruthless and heartless village money lenders. These people were never going to repay the loans because the interest rates were so high therefore, they were trapped for life. However, he found something very thought-provoking, which was the fact that when he accumulated the debt of approximately forty people, the grand total was seventy dollars. He gave people money out of his pocket so that they can repay their debt and they can be liberated. This was the moment when the idea of creating a microfinance institution originated- Muhammad Yunus realized that ...
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All operating costs for the foundations are covered out of corporate profits, so 100% of public contributions to the causes can be dedicated directly to the support of programs and initiatives. The Whole Planet Foundation partners with microfinance institutions to award over $60 million in grants to support development of 116 products in 61 countries from which the company sources products. Microfinance institutions issue microcredit, which was developed by Professor Muhammad Yunus, co-recipient of the 2006 Nobel Peace Prize. It provides low-income individuals access to credit without requiring a contract or collateral. Grant recipients use microcredit to create or expand their home-based business, “enabling them to lift themselves out of poverty.” Whole Planet grants are funded by the sale of Whole Trade Guarantee Program products, as well as contributions from customers, suppliers, and team members. Since the foundation’s inception, over 800,000 borrower families have received loans, with 89% of those families headed by women. Whole Foods estimates that each female head of household loan recipient supports a family of more than five, which means more than 4.2 million individuals have been made more prosperous by the support and contributions of the
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Over 1.4 billion people live on less than $1.25 per day (Singer 7). In impoverished nations, the life expectancy is below fifty, compared to the average of seventy-eight years in rich nations. The mortality rate of children is twenty times greater in “least developed” countries than in developed nations. Nearly 18 million people die every year from avoidable, poverty-related causes (UNICEF). On the other side of the spectrum, there were more than 1,100 billionaires in the world in 2007 (Singer 9). According to Singer, “[t]here are about a billion [people] living at a level of affluence never previously known except in the courts of kings and nobles” (9). Peter Singer insists in his book, The Life You Can Save: Acting Now to End World Poverty, that there is no reason why the rich should not give up part of their income to help the poor achieve a sustainable way of life. Looking at these statistics, who could say that he has an extreme viewpoint? With so many resources and so much money to give away, helping those in need takes no more than a simple action. Giving up some unneeded luxuries to potentially save more than one child’s life would not kill anyone. However, would that, in reality, benefit the impoverished? Ignoring the impoverished will leave them in their current situation; helping them excessively will cause them to rely on others. The real solution to this ongoing crisis lies in microloans.
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Banker to the Poor, the autobiography of Muhammad Yunus, explains the journey of a man out to battle poverty. The story highlights the Grameen bank program, which was founded in Bangladesh by Yunus. The program was formed to provide small loans to the poor to help them get out of debt and achieve a sustainable life. Yunus helped the poor help themselves through micro-lending or small aid. It started with Yunus, twenty-seven dollars, and forty-two women. All forty-two of these women were in never-ending debt. This viscous cycle prevented them from living a full life. Yunus, aware of their reoccurring issues, handed them enough money to get out of debt which happened to be only twenty-seven dollars. The women put the money to good use and established businesses of their own. They could finally afford enough raw materials to get back on their feet and progress in life. This success led to the development of Yunus’ theories, and steered the path to the Grameen bank program.
Banco Compartamos is a commercial microfinance institution rather than a village bank. Up to date, the expansion of the institution has seen it branch out numerously from the pilot objective, which is giving loans to the poor. Analyzing the services delivered by the Grameen Bank in Bangladesh, there is a kind of direct focus on the poor. Notably, loans are not advanced ...
Women in developing countries are not empowered by micro-loans because it can exert women further into debt. Not all women are smart and educated enough to be able to profit from these micro-loans and instead they can be quite dumb and irresponsible with the exerting them further into debt. This does not apply to all the women who receive micro-loans, but a decent portion of them it does. Although, micro-loans could be the key success to a family's triumph out of poverty, they can still propel people into a rough and tough situation. Also, if a women’s micro-loan does not work out they will be put to shame by their whole entire community.
The Grameen Project (Grameen Bank) is a microfinance organization and community development bank that took place in Bangladesh, a state in South Asia. The bank made small loans called “the grameen credit” to the poor in Bangladesh without any guarantee that the person that took out the loan will repay the bank. In Bangla language “gram” means village. The banks purpose was to develop a weapon to fight poverty, which was lending money to the poor villagers. The bank would lend money to the poor villagers that were not allowed to borrow any money because other banks viewed them as incapacitated to repay any loans they take out. This also gave the villagers an advantage to build good credit. The goal by giving out loans to the villagers was that the villagers would open up new small businesses.
As found by Hartangi (2007) that success of Micro finance depends upon the practices of that specific bank, which finance poor people, by quoting and example of BRI (Bank Rakyat, Indonesia) researcher says that they provide technical and moral support to the people they lend money, and make sure they do good, they also choose different collaterals like motorcycle, cars, cattle, and land etc to secure their loan yet making collateral stronger incase the client fails to repay and credits interesting for lower class community. Beside this, Risk management, internal audit, financial procedures, transparent system, dedicated staff, and clear incentives to staff and clients are the factors which contribute toward the successful lending of micro finances. Obamuyi (2009) says that poor credit culture and low risk management can result in low rate of return, which finally ends with the failure of the scheme. The risk of low rate of return can also be minimized by the assistance provided by the MFIs to develop the small business of clients (Zelealem, Temtime, & Shunda, 2003).
1.Christen, Robert Peck; Rosenberg, Richard & Jayadeva, Veena “Financial institutions with a double-bottom line: implications for the future of microfinance” (July 2004)
Overall, microcredit has helped millions of people around the world and it continues to have a great impact on poor people, informing them that all they need is a little ‘push’ or start-up money to begin creating a better life and subsequently a better community. Each organization has its own goals and purposes depending on the country where they reside as well as different challenges that have appeared. Microcredit is helping poor people and small business owners to better themselves as well as to their families and have their time, skills, and ideas utilized in an effective and positive way.
Microfinance refers to provision of financial services to poor or low-income clients, including consumers and self-employed.in other words, it refers to a movement that envisions “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, it includes not just credit but also savings, insurance, and fund transfers.”. Promoter’s microfinance generally believes that such access will help poor people out of poverty.