Microfinance is a term for the practice of providing financial services, such as microcredit, microsavings or microinsurance to poor people. By helping them to accumulate usably large sums of money, this expands their choices and reduces the risks they face.^[1] Suggested by the name, most transactions involve small amounts of money, frequently less than 100 USD.^[2] Financial services is a term used to refer to the services provided by the finance industry. ... // Microcredit is the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not considered bankable. ... ISO 4217 Code USD User(s) the United States, the British Indian Ocean Territory,[1] the British Virgin Islands, Cambodia, East Timor, Ecuador, El Salvador, the Marshall Islands, Micronesia, Palau, Panama, Turks and Caicos Islands, and the insular areas of the United States Inflation 2. ...

History

Microfinance is often dated to the 1970s. Only then, did any programs pass two key tests:

• show that people can be relied on to repay their loans, and
• show that it's possible to provide financial services to poor people through market-based enterprises without subsidy.

Recent evidence gathered by Timothy Guinnane, an economic historian at Yale, raises questions about this view. Guinnane demonstrates that the success of Friedrich Wilhelm Raiffeisen's village bank movement in Germany, which began in 1864 and reached 2 million rural farmers by 1901, resulted in large part from its ability to pass both these tests. Friedrich Wilhelm Raiffeisen (May 3, 1818, Hamm - May 11, 1888, Heddesdorf, currently known as Neuwied, Germany) was a German cooperative leader. ...

Guinnane shows how the village-based bonds of associations of these early cooperatives gave them both the information and enforcement advantages needed to make loans to people who were both too poor and too remote to access bank loans.^[3] Raiffeisen was moved to action by the poverty of the recently freed serfs, and by the degree of exploitation they faced from local moneylenders.^[4]

The caisse populaire movement founded by Alphonse Desjardins in Quebec, also met these tests. Desjardins and his wife Dorimène must have had strong faith in these principles. From 1900, when he founded the first caisse (which she managed), until 1906, when a law governing them was passed in the Quebec assembly, they both risked their personal assets for the liabilities of the entire movement.^[5]. A credit union is a cooperative financial institution that is owned and controlled by its members. ... There have been two people, contemporaries from Quebec, named Alphonse Desjardins: Alphonse Desjardins, founder of Mouvement Desjardins credit unions Alphonse Desjardins, mayor of Montreal and Canadian cabinet minister This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ...

Like Raiffeisen, Desjardins was concerned about the poverty. But he was spurred to action by his outrage over usury. In 1897 as parliamentary reporter, he learned of "one notable [court] case in Montreal within the last few days, in which a man obtained a loan of $150, and was sued for, and was compelled to pay in interest, the sum of $5,000".^[6]

In the 1970s, a new wave of microfinance initiatives introduced many new innovations into the sector. In the early 1970s, several pioneering enterprises began experimenting with loaning to the poor and underserved. An early pioneer of microfinance at the time was Akhtar Hameed Khan. Dr. Akhtar Hameed Khan (1914-99) was a development activist and social scientist credited for pioneering farmers cooperatives, rural training programmes, and Microcredit and Microfinance initiatives in developing countries. ...

The first fully-incorporated microfinance and community development bank was ShoreBank, founded in 1973 in Chicago.^[7] Founded in 1973 on the South Side of Chicago, ShoreBank is America’s first and leading community development bank. ... 1973 (MCMLXXIII) was a common year starting on Monday. ... Nickname: Motto: Urbs In Horto (Latin: City in a Garden), I Will Location in Chicagoland and Illinois Coordinates: Country United States State Illinois County Cook & DuPage Incorporated March 4, 1837 Government  - Mayor Richard M. Daley (D) Area  - City  234. ...

Economics professor Muhammad Yunus is often credited with disbursing the first microloan in Bangladesh in 1974.^[8] He later went on to found the Grameen Bank and was awarded the 2006 Nobel Prize for his efforts. Face-to-face trading interactions on the New York Stock Exchange trading floor. ... The meaning of the word professor (Latin: one who claims publicly to be an expert) varies. ... Dr. Muhammad Yunus (Bengali: , pronounced ) (born June 28, 1940) is a Bangladeshi banker and economist. ... // Microcredit is the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not considered bankable. ... 1974 (MCMLXXIV) was a common year starting on Tuesday. ... The Grameen Bank (Bangla: গ্রামীণ ব্যাংক) is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit) to the impoverished without requiring collateral. ... For the Manfred Mann album, see 2006 (album). ... The Nobel Prizes (Swedish: ) are awards in Physics, Chemistry, Literature, Peace, Physiology or Medicine and Economics. ...

Composition

Microfinance is composed of many finance services such as loans, credit (See microcredit), insurance, etc, run on a smaller scale.^[9] A loan is a type of debt. ... Look up credit in Wiktionary, the free dictionary. ... // Microcredit is the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not considered bankable. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ...

Criticism

There is, however, criticism towards microfinance institutions. In 2001, a Wall Street Journal article raised the questions regarding the Grameen Bank,^[10] including repayment rate, collection methods and questionable accounting practices. 2001 (MMI) was a common year starting on Monday of the Gregorian calendar. ... The Wall Street Journal (WSJ) is an influential international daily newspaper published in New York City, New York with a worldwide average daily circulation of more than 2. ... The Grameen Bank (Bangla: গ্রামীণ ব্যাংক) is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit) to the impoverished without requiring collateral. ...

On a larger scale, some argue that an overemphasis on microfinance to combat poverty will lead to a reduction of other assistance to the poor, such as government welfare.^[11] Welfare is financial assistance paid by taxpayers to groups of people who are unable to support themselves, and determined to be able to function more effectively with financial assistance. ...

Research on the actual effectiveness of microfinance as a tool for economic development remains slim, in part owing to the difficulty in monitoring and measuring this impact.^[12] Questions have arisen regarding whether microfinance can ever be as important a tool for poverty alleviation as its proponents and practitioners would submit.^[13]

Key debates

One key debate within microfinance has been whether donors and practitioners should focus on impact, i.e. improved living standards for the poor, or financial sustainability. The former approach has been called 'poverty lending' or 'the welfarist approach', whereas the latter is sometimes termed 'the institution-building' or 'financial system approach' [1]. Whereas the welfarist approach often supplements financial services with other services such as education and health, institution-builders focus solely on financial service. The arguments for this approach include the following: 1. if poor people are willing to pay to use the institution, it must be offering them value, 2. only by ensuring financial sustainability can the huge demand be met, and 3. donors are best to direct subsidies to other services like education and health through separate non-profit organizations. Examples of the welfarist approach are FINCA International and Women's World Banking. Examples of the institution-building approach are ACCION International and BRI Unit Desa. http://www. ...

Another key debate centres on the appropriate target group for microfinance services. One view is that the most important form of microfinance is credit targeted to poor people who are also talented entrepreneurs. If these people gain access to credit, they will expand their businesses, stimulate local economic growth and hire their less entrepreneurial neighbours. This will result in fast economic development. While this approach has had significant results in the cities of the developing world, it has failed to reach the majority of poor people who are rural subsistence farmers with little, if any, non-farm income. As urban-rural income inequities continue to rise in the developing world, this result is increasingly viewed with dissatisfaction.

The World Bank estimates that of approximately 1.2 billion people who subsisted on less than US $1 a day in 2003, 850 million lived in rural ares.^[14] There is increasing recognition that poor people can and do save informally at home -- but lose much of their savings because home is a risky place to save.^[15] There is also recognition that before rural farmers will have the confidence to start businesses, they must be able to gain more control over other household risks such as hunger, disease and natural disaster. This requires access to safe, flexible small-balance savings accounts.

A new microfinance paradigm is taking shape, with the goal of developing full-service for-profit banks for all poor people. This approach is exemplified by the transformations at Grameen Bank (referred to as 'Grameen II') since 2000 and has been championed by practitioners such as Stuart Rutherford, Graham Wright, Madeleine Hirschland and Marguerite Robinson. The Consultative Group to Assist the Poor (CGAP) has also published extensively on the new microfinance. These banks will be able to support their clients' efforts to control family risks as well as capitalize on business opportunities. They will offer their clients' opportunities to protect and grow their assets as well as to increase their incomes. They will offer their clients' loans for consumption as well as business purposes. They will offer savings, insurance and remittance services. The Grameen Bank (Bangla: গ্রামীণ ব্যাংক) is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit) to the impoverished without requiring collateral. ...

See also

• Microfinance Articles

Notes

[2] Agabin, Meliza and John Owens Experience of Philippines' Rural Banks in Microfinance Finance for the Poor, June 2006 Volume 7 Number 2, Asian Development Bank Fairfield University is a private, co-educational undergraduate and masters level university located in Fairfield, Connecticut, in the New England region of the United States. ... January 2 is the second day of the year in the Gregorian calendar. ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... 2001 (MMI) was a common year starting on Monday of the Gregorian calendar. ... October 1 is the 274th day of the year (275th in leap years) in the Gregorian calendar. ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... February 7 is the 38th day of the year in the Gregorian calendar. ... The New Yorker is an American magazine that publishes reportage, criticism, essays, cartoons, poetry and fiction. ... For the Manfred Mann album, see 2006 (album). ... October 30 is the 303rd day of the year (304th in leap years) in the Gregorian calendar, with 62 days remaining. ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... January 10 is the 10th day of the year in the Gregorian calendar. ... January 1 is the first day of the calendar year in both the Julian and Gregorian calendars. ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... For other persons named Daniel Pearl, see Daniel Pearl (disambiguation). ... The Wall Street Journal (WSJ) is an influential international daily newspaper published in New York City, New York with a worldwide average daily circulation of more than 2. ... 2001 (MMI) was a common year starting on Monday of the Gregorian calendar. ... November 27 is the 331st day (332nd in leap years) of the year in the Gregorian calendar. ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... January 10 is the 10th day of the year in the Gregorian calendar. ... Z Communications is media group, founded in 1987 by Michael Albert. ... For the Manfred Mann album, see 2006 (album). ... October 19 is the 292nd day of the year (293rd in leap years) in the Gregorian calendar. ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... January 10 is the 10th day of the year in the Gregorian calendar. ... 2003 (MMIII) was a common year starting on Wednesday of the Gregorian calendar. ... January 1 is the first day of the calendar year in both the Julian and Gregorian calendars. ... Portable Document Format (PDF), sometimes mistaken for Printable Document Format, is an open file format created by Adobe Systems in 1993 and is now being prepared for submission as an ISO standard. ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... March 27 is the 86th day of the year in the Gregorian calendar (87th in leap years). ... 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the Anno Domini era. ... March 27 is the 86th day of the year in the Gregorian calendar (87th in leap years). ... The Asian Development Bank (ADB) is a multilateral development finance institution dedicated to reducing poverty in Asia and the Pacific. ...

External Links

• the Microfinance Gateway contains research and publications, news, events and job listings for the microfinance industry.
• The MIX Market provides financial information on microfinance institutions.
• http://www.yearofmicrocredit.org/ — The page of the UN program of 2005
• Rural Finance Program - The Ohio State University Publications and links.
• United Nations Capital Development Fund is the Microfinance arm of the United Nations.
• http://www.devdir-microfinance.org/] - directory of development organizations for microfinance.