What is microfinance?
Microfinance generally refers to the provision of basic financial services such as loans, saving accounts and insurances for poor or low-income people. In most instances the term microfinance refers to the provision of small loans (=micro credits) for micro entrepreneurs.
The UN believes microfinance to play a central role in the battle against poverty and proclaimed the year 2005 as the “International Year of Microcredit”.
The idea of microfinance, however, is not new but can be traced back to the principle of self-help and solidarity which was devised by savings banks and cooperative banking groups (e.g. Raiffeisen) 150 years ago.
In the 70s Muhammad Yunus, professor of economics, began to hand out small loans in his home country Bangladesh. He founded the Grameen Bank in 1983 which today is active in over 70,000 villages in Bangladesh. The Grameen Bank employs 25,000 people and has 7.4 m borrowers, 97 % of which are women. Muhammad Yunus was awarded the 2006 Nobel Peace Prize. His concept is employed in 60 developing countries today.
„All that is necessary to save the poor from poverty is to create a functioning environment. Once the poor can unleash their energy and creativity poverty will vanish quickly”.
(Muhammad Yunus, professor of economics, Grameen Bank, Lecture at the Nobel Peace Prize award, Oslo, 10 December 2006)