Microfinance is the provision of financial services (microcredit, microinsurance, etc.) to poor people who are excluded from the banking system, have no resources neither ownership rights. The poorest are excluded from the conventional banking system because they are not employees, because they have no collateral and are often illiterate, and because they are not a priori a “profitable” population. As a result, they have no access to financial services, especially to savings and credit. Microcredit allows these destitute women and men to set up a small income-generating activity: a microenterprise. The income of this business helps to repay the loan; sometimes, it also allows to save a part of the money and to fund children’s education.
The institutions that offer microfinance services are commonly called “Banks for the Poor” or Microfinance Institutions. At the beginning, they drew inspiration from the informal system that existed in the developing regions. For example, they often encourage their clients to form solidarity groups, since the group represents the repayment guarantee of each member, following the model of tontines in West Africa, of ROSCAs in English-speaking Africa and in Asia, etc. The Banks for the Poor are often established by independent cooperatives or NGOs (Non-Governmental Organizations); they can also come in the shape of programmes developed by humanitarian associations or international organizations or, more seldom, be subsidiaries of commercial banks.
In 2002, more than 2 billion people survive on less than € 2 per day. More than 500 million of them are estimated to be able to start up their own business, thus moving out of poverty. However, today, microfinance beneficiaries are less than 30 million worldwide.
Microfinance has come in a variety of shapes for centuries. But it has really started evolving approximately thirty years ago. In the 60s and the 70s, programmes offering loans at low interest rates were set up. Their model was followed by the Banks for the Poor in their current state. However, these first attempts were rather unsuccessful. One of the first successful Banks for the Poor is the Grameen Bank. Its founder, Muhammad Yunus has decided to set interest rates high enough so that expenses can be covered (the granting of a € 50 loan requires the same amount of staff and resources as the granting of a € 1000 loan!). He has also focused the Grameen Bank on a limited number of activities (mostly savings and small loans). Last but not least, he has chosen to ask borrowers to organize themselves in solidarity groups of five people (who meet every week in order to repay their loans and to exchange opinions on their use). The idea of the Grameen Bank came to Muhammad Yunus’ mind, when he lent the equivalent of $ 26 to 42 exploited women who were working as bamboo furniture makers. When he saw that they were so enthusiastic and that they repaid their loans on time, he decided to expand this system to other villages of Bangladesh. In 1983 the institution became a bank. Today, it operates in almost 36,000 villages and serves more than 3500000 people! The institution has noted that the loans made to women are repaid on a more frequent basis and have more beneficial effects on children’s living conditions, having thus a higher social impact. 94% of Grameen Bank clients are women.
On all continents, Banks for the Poor evolved following the Grameen Bank example.
Today, they operate in 85 countries. However, while in some countries needs
are covered (e.g. in Bangladesh and in Bolivia), the majority of most populated
regions have almost no access to microfinance services. In the case of South
America, the most populated countries -Brazil, Mexico, Argentina- face the worst
situation.It appears that until now, the Banks for the Poor evolved in countries
displaying a minimum of political and economic stability. Most big countries
where there is no MFI are those that experience internal conflicts or those
that receive very little international support. There are Banks for the Poor
in developed countries as well, e.g. in the United States and in France. Today,
there are approximately 7000 Banks for the Poor, 1500 of which are internationally
recognized and supported by NGOs. They serve 44 million savers and approximately
23 million borrowers, which means that there are 54 million members in total.
Repayment rates are often excellent. For example, in Morocco in 2002, the country’s
11 Microfinance Institutions served more than 180,000 clients, and the loans
were repaid at 100 %; in Bangladesh, the Grameen Bank serves more than 2 million
clients and its repayment rate is higher than 97%.