A Brief History of Microlending

Microlending was pioneered by an economics professor named Mohammed Yunus who became frustrated by the cycle of poverty he saw in his native Bangladesh. In 1976 Yunus launched the Grameen Bank Project to study the feasibility of offering banking services to poor entrepreneurs being exploited by money lenders.

His first loan was $27 to local women who wove bamboo stools. Because of loan sharks the women made just a penny’s profit on each stool. With their microloan from Yunus, they bought their own materials, repaid the microloan and began to flourish as small businesswomen.

When similar experiments proved successful in several other regions, the Bangladesh government approved Grameen Bank, the world’s first lending institution to focus on providing unsecured startup capital for the working poor.

By most accounts, including independent studies conducted by the World Bank, the International Food Research Policy Institute (IFPRI) and the Bangladesh Institute of Development Studies (BIDS), Grameen is a success. According to www.grameen-info.org, as of May 2008 Grameen has 7.5 million borrowers and has made loans to people in 82,072 villages, which constitutes more than 97 percent of villages in Bangladesh. Repayment is 98 percent. In 2006, Yunus won the Nobel Peace Prize for his work.

Other microlending financial institutions copied Grameen’s model and MFIs now number in the tens of thousands and can be found all over the world, even in the United States. Microlending has become so widespread that the United Nations declared 2005 the International Year of Microcredit.

  • Peter Renton

    Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

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