Definition of microfinance

This is where financial institutions back tiny start-ups and would-be entrepreneurs, with small loans, in the poorest parts of the world

Microfinance started nearly 40 years ago when Muhammad Yunus, lent $27 to a group of women in Bangladesh making bamboo furniture. Until then traditional banks had been loath to fund such tiny operations, fearing high risk.

But Mr Yunus, who founded Grameen Bank, and economists found these groups were mostly good credit risks, paying back loans fast and often borrowing more to expand. Lending institutions – non-governmental organisations, local co-operatives and banks – found lending to these people was good, repeat business. Moreover, MFIs helped to improve standards of living, transforming and empowering marginalised groups, particularly women, in some of the worst slums and ghettoes in developing markets.

By 2006 it was estimated 90m people were borrowing from microfinance institutions (MFIs) to fund cottage industries and embryonic businesses. [1]

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Pension funds turn to low-risk microfinance

A history of microfinance