Micro-loans allow people with little or no credit to borrow money. The father of the concept is Dr. Muhammad Yunus, an economist from Bangladesh. Dr. Yunus’ innovation was born out of dire necessity. In the early 1970s, as he taught economics at Chittagong University, he witnessed the terrible famine affecting his country. Frustrated at the disparity between the economics he taught and the real-world situation, he set his mind to changing things.
Recognizing that credit is the lifeblood of an economy, Dr. Yunus hit upon the idea of micro-loans. He started by lending his own money, in very small amounts, to the poorest of the poor. Then, in 1983 he started Grameen Bank to expand his efforts. Most borrowers are women, and they have to show that they own less than onehalf acre of land. The small loans (usually less than $200) are used to open shops, buy seeds, and fund small enterprises. Over the years, Grameen Bank has loaned more than $8 billion to poor Bangladeshis and has expanded to over 1,000 branches in Bangladesh. Overwhelmingly, borrowers have shown their creditworthiness, with a solid 98% repaying their loans.
In his book Banker to the Poor, Dr. Yunus discusses his experiences leading to the founding of Grameen Bank. His micro-credit model has been put into practice by banks in more than 100 countries. For his tireless efforts on behalf of the poor, Dr. Yunus has received numerous awards, including the Nikkei Asia Prize for Regional Growth in 2004 and the Nobel Peace Prize in 2006.
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