Microfinance/microcredit: the aspect of grameen bank
In this cyber age of hi-tech Modernization and Globalization, too little attention is paid to the grass root level of the society, comprising of millions of poor and deprived people. Microfinance emerged as sunshine of hope in their dismal world of ignorance and despair. It is a contrivance to combat the overpowering demons of poverty. It has given a new life to people diminishing with poverty.
Microfinance is an expression for the procedure of bestowing pecuniary services, such as micro insurance, micro credit or micro savings to poor and unprivileged people. By helping people below poverty level to amass usably hefty sums of money, Microfinance enlarges their preferences and thus trims down the jeopardy they cope with. Many economists all over the world believe that the Microfinance system was first introduced in the year 1970. With the concept of Microfinance a new wave of initiatives was set up in the economy, which resulted in many new novelties in that sector. In beginning of the same year several enterprises came up breaking new grounds and embarked on experimenting with granting loans to underserved and poor people. Akhtar Hameed Khan is a prominent name in the field of Microfinance. He was the person who pioneered the system of Microfinance at its early stage. In the year 1973, in Chicago Shore Bank was founded. It is the first entirely integrated bank designed for microfinance and community development. Professor Muhammad Yunus, a professor of economics, in the year 1974 received the credited of giving out the first Micro loan in Bangladesh. Later in the year 2006 he and Grameen Bank, an institution established by him to fulfill the same great purpose, were awarded the Nobel peace Prize for countless efforts and steady approach in the field of Microfinance. (Dollard, 2006)
Microfinance is the supply of basic financial services like savings, loans and other pecuniary facilities to the poor an unprivileged. People living below poverty level, like other businessmen, require a sundry range of fiscal apparatus to move forward their businesses, develop resources, balance consumption, and protect themselves against jeopardy. Mostly the rural people, due to lack of education and information hardly ever access the facilities and services provided by the formal financial institutions. Poor villagers meet their requirements for fiscal services through assorted informal pecuniary relationships. Both mercantile and non profit-making money lenders, usually at a very high cost provide credit to borrowers. Variety of informal institutions like credit associations, savings clubs, mutual insurance societies, commercial and state banks rotating savings, post offices, credit card companies etc emerged with time to help the poor villagers, but these institutions generally have a predisposition to be unpredictable and insecure. Now days several institutions, like cooperatives, non-government and non-profit organizations (NGOs), community based development association like credit unions and self-help groups, etc and other non bank fiscal organization have came forward in budding executable credit policies for the poor and unprivileged and intend to reach out to more and more numbers of the people in need. From 1980s and 1990s, through out the decade these agendas enhanced upon the initial methodologies and fly in the face of conventional theories about financing the underprivileged. They have succeeded in proving that the poor reimburse their credit and are disposed and capable of paying interest rates that comprise the expenses of bestowing the credits. Providing financial services to the poor and unprivileged gradually proved to be an affective device for eradication of the demons of poverty. The financial services provided under Microfinance system enables the poor and unprivileged people to set up assets, raise per capita incomes, and trim down their defenselessness to financial stress. But instead of all the efforts more than one billion people still remain behind the sheaths of darkness, deprived from basic financial services provided under Microfinance system, especially the very poor and unprivileged people residing in remote villages, lacking communication, bestowing them with financial services still remains a matter of challenge for Microfinance system. In today’s economic scenario convenient, reliable and secure fiscal services are a predominantly fundamental requirement. (Kar, 2000)
Micro credit is the term for the approach of providing diminutive loans (micro loans) to the unwaged and unemployed people, to poor business men and many others people living under the poverty level. According to the orthodox banking principles this section of society is out of consideration of bankable. These people lack security, stable employment and most often a verifiable past record of scrounging and repayment, as well as information about delay in repayments and sometimes even official declaration of lack of ability or impairment of capacity in paying back their lenders, and therefore these people are not expected to fulfill even the most nominal qualifications to obtain admittance to traditional profit oriented credit system, which follows the basic principle of offering loans on the basis of economic status, security of repayment. Micro credit can better be defined as a component of Microfinance, which is the provision of fiscal services to the deprived and poor section of society. Other than credit facilities, Micro credit also takes account of micro insurance, savings and other fiscal improvements. (Fletcher, 2006)
Micro credit, a component of Microfinance can better be defined as a fiscal improvement, which stem from in developing countries, with comparatively low living standard, an undeveloped and instable industrial base, and a mediocre to low Human Development Index (HDI) score, which proves the comparative lack of life anticipation, education, literacy and living standard of people low capital formation, low per capita income and prevalent poverty being persistent problems faced by these countries. In the countries in which Micro credit system has been successfully applied, extremely indigent people (especially women) became capable of engaging themselves in self-employment projects, where they can work for themselves instead of being an waged employee and working for another person or company, drawing earnings from a business or a trade, that permit them to generate an earning and, in most cases, start building wealth and finally break the shackles of poverty. The unimaginable accomplishments of micro credit system have compelled many individuals as well as institutions in the authentic banking industry to reconsider the poor and unprivileged micro credit borrowers as bankable, or more appropriately required to be classified as pre-bankable, thus, it can be easily determined that micro credit is progressively gaining reliability in the mainstream finance industry and several traditional well established fiscal organizations are giving consideration to the Micro credit projects as the foundation of future progress. Even though most individuals employed in big and established development organizations discounted the probability of progress of Micro credit system when it was launched in its progressive manifestation as pilot projects with ACCION, a non-profit institution founded in the year 1961 with the mission of providing petite credits and technical support to every individual around the world, who is under serviced and unprivileged by seeking support and help from local banks, and professor Muhammad Yunus with the launch of his concept of Grameen bank in the middle of 1970s, the United Nations declared the year 2005 as the International Year of Micro credit. This event brought Microfinance into lime light and introduced it as an apparatus for socioeconomic development. (King, 2005)
The history of Micro credit is dated behind in 1959, when Dr. Akhter Hameed Khan as the initiator of East Pakistan (now Bangladesh) Academy for Rural Development launched the revolutionary initiative of Micro credit (Microfinance), thereby initiating a new prospect for billions of impoverished and underprivileged. In, his Comilla Cooperative Pilot Project, which was launched in the year1959 by Pakistan Academy for Rural Development, agained renamed in the year 1971 as Bangladesh Academy for Rural Development (BARD), located on the outskirts of Comilla town is considered a mile stone of Micro credit and rural progress initiatives in developing countries. In 1980s Orangi Pilot Project in slums of Karachi (Pakistan) was pioneered by him. Along with other programs, this project also provided a varied list of programs like a people’s finance, Low-Cost Sanitation Program and even a Program for well Supervision Credit for Small Family Business enterprise Units. (Kar, 2000)
Fundamental Principles followed by Micro credit are using savings or investment as a powerful apparatus for boosting self-esteem and enduring self-confidence of the entrepreneurs to ensure progress. Entrepreneurial aptitude and dynamism are scarce and at the same time priceless resources for economic progress. The individuals possessing real entrepreneurship capabilities but suffering from lack of monitory support can be beneficiated from the micro credit industry. Arising a new era in banking business where the new generation of banking professionals will be appointed to give a new definition to banking and simultaneously reach the scoring heights. (Lamb, 2004)
Micro finance and micro credit has no doubt introduced a new era in banking business. In several ways it has proved to be beneficial to poor and unprivileged entrepreneurs, but as per the famous saying nothing is perfect, micro credit system has always been reviewed from a lender’s point of view without considering the viewpoint of the borrowers. This system has made poor people repeat borrowers, and thus they became reliant on loans for domestic expenditures rather than capital investments. Prevailing corruption in the system keep borrowers out of paid work and hence they get pushed into the unofficial economy. (King, 2005)
Grameen Bank became very popular in Bangladesh. Without any prior security it provides credit to the poor and underprivileged people in rustic vicinity. In Grameen Bank credit is considered as a cost effective contrivance to combat poverty and it performs the role of a catalyst in the overall socio-economic development of the country. Grameen Bank formerly known as Grameen, begin with giving out minuscule loans under an organization which later transformed into a complete bank known as the Grameen Bank. Within a few years, Grameen Bank managed to attain unimaginable popularity. The Nobel Committee of Norway in the year 2006 has made a decision to award the Nobel Prize for peace to Grameen Bank and professor Muhammad Yunus for their efforts to generate social and economic advancement from grass root level. professor Muhammad Yunus, the founder of Grameen Bank, who conceived the idea of Grameen Bank and has devoted his whole life to translate his long cherished dream into practical accomplishment for the advantage of countless people, not only the residents of Bangladesh, but also in several other third world countries. In poverty stricken countries like Bangladesh, India Enduring harmony can never be accomplished if not each and every person in the country finds ways in which he can break the shackles of poverty. One such contrivance to combat poverty is Micro-credit system. Progress from grass root level ultimately serves to enhance human rights and democracy. Three decades ago, professor Muhammad Yunus From his humble beginnings developed micro-credit system into a further more operative mechanism in the combat against poverty. Gradually Grameen Bank has developed into a source of models and ideas for the several new organizations, which that have launched themselves in the field of micro-credit through out the globe.
In the year 1976, Grameen Bank was pioneered by professor Yunus to provide credits to poor and unprivileged Bangladeshis. From then till now, within a decade Grameen Bank has issued loans exceeding 5 billion dollars to millions of borrowers. A system of solidarity groups, small unofficial groups, mostly all of them consisting of female members, that hold weekly meetings in their vicinity to carry out business with the representatives of the bank, and who encourage each other’s efforts in accomplishing fiscal self advancement, were used by the Grameen bank to ensure repayment of loans. With its growth, the Grameen Bank has also come up with other schemes of alternate credit to provide more felicities to the poor. Over and above Micro credit, Grameen bank also provides housing loans. In addition to providing finance for irrigation projects and fisheries, venture capital in textiles, and other activities, along with all these felicities normal banking services such as savings are also provided by Grameen bank. (Kar, 2000)
Nobody can or does question the need of reform. The controversy has always been over how to go about it. Instead of all criticisms and shortcoming Micro finance and micro credit has no doubt introduced a new era in banking business, helping poor to stand on their feet and thus break the shackles of poverty.
Dollard, John; (2006) Grameen Bank: The New Economics. New Haven and London: Yale University Press.
Fletcher, R; (2006); Beliefs and Knowledge: Believing and Knowing in Finance; Howard ; Price. 276
Kar, P; (2000); Economic History of Bangladesh; Dasgupta ; Chatterjee
King, H; (2005); Bangladesh Today; HBT ; Brooks Ltd. 143
Lamb, Davis; (2004); Cult to Culture: The Development of Civilization on the Strategic Strata; National Book Trust.