The global microfinance movement emerged in the mid-1970s with a series of lending experiments in poor villages throughout Asia and Latin America. Perhaps, the most celebrated milestone in the development of microfinance was the introduction of the Grameen Bank in Bangladesh.
In 1976, economics professor Muhammad Yunus began experimenting with the concept of microcredit by making small loans to poor households in a rural Bangladeshi village. He found that the loans not only enabled borrowers to run and grow simple businesses like bamboo-weaving and rice-husking but the borrowers also repaid their loans reliably – despite the fact that they possessed no collateral to guarantee their loans. This discovery defied conventional banking wisdom of the time, in which the poor were viewed as ‘unbankable’ due to their lack of collateral and non-existent credit histories. Because they were viewed as a high risk to lenders, poor populations worldwide were systematically excluded from their countries’ formal financial systems. Their only banking options were to borrow from local money lenders, who charged annual interest rates as high as 100 percent, or to borrow from family members.
The success of Yunus’ lending experiments led to the establishment of the Grameen Bank in 1983. As of March 2006, the Grameen Bank had 1,952 branches across India and Bangladesh, worked in 63,712 villages, and employed 17,686 staff. The Bank serves approximately 5.98 million borrowers, 96 percent of whom are women, and reports a repayment rate of 98 percent. In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for his contributions to the global microfinance movement.
