Micro financial is any term used with the process of providing financial services, for example micro credit, small financial savings or micro insurance coverage, to help poor people. By assisting the indegent accumulate usable sums of money, they might grow their own options as well as reduce the many risks they face. As recommended by the name, micro finance, most transactions include small quantities of funds, regularly under $5,000. Some governmental institutions define small finance as volumes below $25,thousand.
Micro finance is usually dated as beginning in the seventies, but earlier experiments in Germany and Quebec have been observed historically. The movements gained momentum in Bangladesh during the early 1970s where Economics mentor, Mohammad Yunus, starting a micro credit company which became the Grameen Financial institution. In 2006, Yunus was awarded the Nobel Peace Prize for his efforts.
Yunus believed in the character and self-respect of every human being. He found every individual being as an entrepreneur and he assumed that, by performing with these very poor people, many people might have themselves out of lower income. From those philosophical beginnings, he began the Grameen Bank in Bangladesh. The Grameen financial institution idea was primarily based on Yunus’ teaching as a good economist as well as his belief that access to funds was the essential component in the poor rising above low income.
This financial institution do was based on a very easy term. The term is one year with weekly installment with the simple 20% interest rate. Every loan application was connected with several borrowers to grow accountability on each other members of the group. So, the healthy of their repayment are keep on track. If one individual lack from repayment, another group member will be held accountable and take the responsibilities.
The Grameen also can increased the loan amount based on the track record of the borrowers.
Because of the culture of the village life, Yunus didn’t ever give any training or detail explaining to the borrowers. In his opinions, it could scare the borrower with the complex theoritical in micro finance.
Nowadays, almost every developing country duplicated what yunus did. Including in Mexico, Indonesia, India and Africa.
What about Micro Finance in America? I’ll post on next post