MICROCREDITS

According to one expert in innovative government, the micro-credit program "is the single most important development in the third world in the last 100 years, and I don't think any two people will disagree."

You will be wondering what this enthusiasm is about. Micro-credits are programmes to extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families. This financial innovation is generally considered to have originated with the Grameen (=village) Bank in Bangladesh.Today, Grameen has 1,084 branches, with 12,500 staff serving 2.1 million borrowers in 37,000 villages. On any working day Grameen collects an average of $1.5 million in weekly installments. Of the borrowers, 94% are women and over 98% of the loans are paid back, a recovery rate higher than any other banking system. Grameen methods are applied in projects in 58 countries, including the US, Canada, France, The Netherlands and Norway.

Grameen Bank was founded by Muhammad Yunus in 1983. In 1976, the Bangladeshi economics professor tried an experiment. From his pocket, he lent the equivalent of $26 to a group of 42 workers. With that 62 cents per person, they bought the materials for a day's work weaving chairs or making pots. At the end of their first day as independent business owners, they sold their work and soon paid back the loan.


'You can't leave people poor and live happily thereafter.'

Now almost all its borrowers are women, who tend to be poorer than men, have fewer opportunities and are much more likely to spend new earnings on their children. Grameen requires its borrowers to organize themselves into groups of five. All are cut off if one borrower defaults.

They meet every week to make loan payments at commercial interest rates and critique one another's business plans. They also pledge to boil their water, keep their families small and carry out other good health practices. People who repay small loans on time can take bigger ones. Grameen, which now makes a profit, claims a higher repayment rate than traditional banks. One-third of its two million borrowers have crossed the poverty line and another third are close.

Click on the image to see the 16 pledges

Grameen Bank and Mohammad Yunus were awarded the Nobel Peace Prize in 2006. The Nobel Organization prepared this 10 minute video portrait which you can watch if you click here.

On a related note, visit this lovely site where microfinancing is explained to children.