What is Microfinacing?
Without access to credit, there is little to no hope that poor will ever be able free themselves from the endless cycle of poverty.
This is what Dr. Muhammad Yunus sought to change when he started the Grameen Bank Project in 1976, during the famine in Bangladesh, where people were literally dying on his doorstep. Dr. Yunus found that by lending small amounts of cash, anywhere from $25 to $200, to groups of poor women in rural villages, real changes could be made. Women started small businesses: using their skills at weaving baskets, for example, and since they were not indebted to moneylenders, could pay back their loans and have enough money left over to feed and educate their families.
Today, microfinancing reaches over 150 million people throughout the world.
Why is micro-credit revolutionary?
Microcredit or "banking for the poor" is an amazingly simple approach that assumes that very poor people are good credit risks. Before the microcredit revolution, no conventional bank would lend to poor people because they had no collateral. People had no choice but to turn to moneylenders who trapped them in an endless cycle of debt, by charging as much as 200% interest. At microfinanceinstitutions, entrepreneurs can obtain loans to start self-supporting businesses using traditional skills.
What is an MFI?
An MFI is a microfinance institution or "bank" that operates in a local community and lends small amounts of capital to groups of poor people.
What happens when the loans are repaid?
A key to microcredit is the recycling of loan dollars. As each loan is repaid, usually within six months to a year, that money is used to provide another loan, thus multiplying the value of each dollar in defeating poverty.
What about collateral?
Unlike other conventional loans provided by traditional financial institutions, those who receive micro-loans do not need collateral.
How can you be sure the loans will be repaid?
The peer support system used by many microcredit programs fosters successful repayment. Clients gather weekly at their "banking" center to make loan payments where they share successes and discuss ideas for solving business and personal problems. This mutual support strengthens their resolve to stay on the path out of poverty.
What is the repayment rate?
Microcredit clients have proven to be excellent credit risks. The repayment rate is between 95 and 98 percent higher, in fact, than that of student loans and credit cards in the United States.
What kinds of businesses does micro-credit finance?
With small sums of money, the entrepreneurial poor are able to purchase the inventory, supplies and tools to start or expand microbusinesses such as weaving, sewing, grinding grain, growing and selling produce, catching and selling fish, wholesaling dried fish, raising chickens to sell eggs and breeding livestock.
Why target women for loans?
Women are the best poverty fighters. Studies have shown that women are more likely to use the profits from their businesses, not just to feed their families, but to improve their families’ nutrition and living conditions, as well as to send their children to school thereby giving the next generation a much better chance to climb out of poverty.