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Jun 6, 2008
Microcredit is a new concept in banking in which tiny loans are given to the poorest of people to help them start a small business. The concept was created by Muhammad Yunus, an economics professor in Bangladesh. Unlike traditional loans, these small loans require no collateral, background check, or interest, and almost 100% are paid back in a timely manner.

Until microcredit came along, banks only made loans available to people starting large companies. They were large loans requiring approval and were subject to all the things we've become accustomed to seeing like collateral, interest, and late fees. Now poor people are able to better themselves and their communities with small loans, usually less than $1,000, to open businesses like roadside fruit stands.

Because traditional banks don't usually offer microcredit, Muhammad Yunus founded Grameen Bank. He and the bank were jointly awarded the Nobel Peace Prize in 2006. Today the bank is operating about 2,500 branches in the poorest areas of Bangladesh serving approximately 80,000 villages. Surprisingly, the bank is 94% member-owned by people who either own no land or have less than an acre of land.

Most of the world's business owners are men, so obviously most of the loans are also in the name of men. This is another major difference between traditional and microcredit loans. Microcredit loans are given to women 96% of the time. In poor countries, women traditionally manage the basic needs like food and clothing, so it makes sense that they would open businesses to sell their excess.

In 1974, Muhammad Yunus made his first personal loan during a time when Bangladesh was facing famine. Struggling citizens were turning to ruthless loan sharks for help, but it only made their situations worse. As a professor of economics, Yunus wanted to help these people because the real world they faced each day was nothing at all like the textbook ideas taught in his classes.

More shocking than the poverty all around him was just how little Muhammad Yunus needed to do to help these people. His first loan was only $27, and it was made to a group of 42 women who were in trouble with loan sharks. They were able to pay off their interest-bearing loans and better their lives. When Muhammad Yunus brought the idea to banks, he was laughed out the door.

It only takes one person. Muhammad Yunus' passion has changed the face of economics and the lives of people around the world forever. Little things can be so much more powerful than they seem. He believes everyone should have the same right to credit regardless of their financial background.

Microcredit banks are entirely opposite of traditional banks, yet the repayment of microcredit loans is still almost 100%. Even during times of disaster when richer nations would default on their loans, poor people strive to repay theirs through adversity. There are no lawyers, collateral, or interest, only hard-working people with the drive to better themselves.
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