A Brief History
Microfinance emerged in the 1970s, as social innovators began to offer financial services to the working poor, who were previously considered "un-bankable" because of lack of collateral and low creditworthiness. Once given the opportunity, not only did clients of the MFIs expanded their businesses and increased their incomes, but their high repayment rates demonstrated that the poor are capable of transforming their own lives given the chance.
Yunus launched the idea of the Grameen Bank after he returned to Bangladesh from the United States to take a teaching job in the economics department at Chittagong University. Alarmed at the poverty created by ongoing famine, he and his students started an experimental project extending a loan of $27 to women for buying straw to make small furnitures. In 1976, Mohammed Yunus started with the Grameen Project and later in 1980s evolved the Grameen Bank.
Some Innovative Endeavors Defying Conventional Thinking:
The Grameen bank not only defied conventional lending rules by making loans to the poorest of the poor, but also challenged the cultural taboos, by giving most of the loans to women in a Muslim dominated society where rural women at the time were seldom allowed to touch money or work outside of their homes. The bank issues most of its loans to women because Yunus discovered that they spent their money more carefully and paid back the loans in far high percentages than did men.
Some years ago, the bank started a program to give beggars or "struggling members" lines of credit of about $9 to purchase small items such as bread, candy, pickles and toys. Recipients of the loans then resell the goods "to supplement their begging," according to the bank's description of the program, which is intended not only to empower beggars, but to boost their morale and dignity.
Micro credit - The Salient Features:
Microfinance generally involves the following features:
*Small size of loans: The size of the loans is small and usually constitutes less than $100. The amount of credit can be used for both working capital management and acquiring assets.
*Collateral free: The most remarkable feature of micro credit is that it is free from collateral security. But however we know that micro credit is no charity the security of repayment is substituted by group guarantees, compensatory savings and peer pressure.
*Access to repeat and larger loans: Each time the borrower makes full repayment of his/her loan they are eligible to avail the facility of repeat loans and can take credit of higher amounts.
*Loan period: The loan is usually short term in nature generally starting from1 year and may extend to a period of 3 years.
*Repayment: Options available for weekly, biweekly or monthly repayment of the loan.
From Credit to Enterprise - A Microcredit Structure: