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 Origins of Microcredit    

Microcredit for The Developing World:  A Step Toward the Eradication of Poverty
By Antonia Malone

Poverty is not a given; poverty exists because of the misplaced priorities of the institutions we have built to govern our social and economic lives, and because, out of ignorance, we have accepted these priorities as immutable.

In the early 1970’s Mohammad Unus, an American trained Bangladeshi economist, with a new PhD in hand, returned to his country hoping to help his people.  While teaching economics at Chittagong University, he began to be aware that nothing he had learned in his economic classes at Vanderbilt University even began to address the problems of the poor villages surrounding the university where “people were just moving toward death because there wasn’t enough food to eat.”

He decided he had to try to understand what was going on.  Why were people starving despite all the humanitarian aid that was flooding Bangladesh?  Walking from village to village, he noticed that often people suffered because they lacked just very tiny amounts of money which might enable them to better their situation, and he came to the conclusion that the lack of access to credit was one of the major reasons that the poor were unable to work their way out of poverty.

So with the assistance of some of his students he began to make small loans to a handful of people.   His first loan was for $6 to a woman to buy material to make woven reed baskets and stools.  Formerly, she had been forced to sell her products at a very cheap rate to the man who sold her the reeds, who then resold the finished products and walked off with the profit.  Her income was 6 cents a day.  With Unus’ loan she was free to buy and sell to whomever she wanted, and her profits soared to $1.47 a day.  Today that woman has a thriving basket business, can feed her children and has been able to build a house with a tin roof for her family; a dream come true for a poor family.

From these inauspicious beginnings grew the Grameen Bank, a micro-lending institution, which, in the last thirty years, under Unus’ leadership, has loaned over two billion dollars to over 3.5 million of the poorest people and substantially made an impact on the poor of Bangladesh. 

Today there are microcredit institutions providing microcredit loans to the poorest of the poor all over the world.  In Latin America they are often under the umbrella of ACCION in India of SEWA,  in Africa, SEF, in Haiti, Fonkoze.  In the United States, the South Shore Bank of Chicago has pioneered a microcredit program.  At a recent microcredit summit, it was estimated that these programs are now reaching about 10% of the poor in the world and making a substantial difference in their lives.

In addition, institutions are finding that the poor are a good credit risk.  Repayment rates are steadily 90%-97%; substantially better than many banks.  Where formerly, if the poor wanted a loan, they had to go to a loan shark and pay exorbitant daily interest rates which continually compounded and kept them impoverished.  Microcredit loans, for the most part, have low, simple interest rates.

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