Counts (1996) said that Muhammed Yunus talked with the poor village people and discover that general local bank never shows interest to provide loan to poor people and does not lend them and they had to borrow money from extortionate moneylenders with high interest rates. As a result, they ended up more-or-less permanently in debt and any money they made went to pay the interest on these high-interest loans. Yunus became conscious at that moment that the poor problems were in some ways no different from anyone else: low interest credit was a necessity of life.
Definition of Micro Credit Auwal (1996):
An extremely small loan given to impoverished people to help them become self employed. Also known as “micro lending.” This small loans extension (microloans) to those in poverty designed to spur entrepreneurship. These loans especially given to a poor person to enable him or herself to become self employed. Financial services loaned a small amounts of money usually around $50-$150 to poor people as a capital of a small business to start or extend it. The Grameen Bank in Bangladesh has become a model of successful micro loan provider.
Principles of Microcredit: General financing or credit.
It emphasizes building capacity of a micro-entrepreneur.
Help the micro entrepreneur on during difficult.
Advantage of Microcredit Soeama (2004):
Source and cost of funding: “
In order for the Microfinance institutions to loan they need funding too and a stable microfinance institution might have a competitive advantage of low cost of funds which enables it to provide finance at low cost.
Infrastructure set up:
Microfinance companies must have a required network and infrastructure to deliver these services. The Grameen Bank of Bangladesh creates and implements this structure in rural village area.
MFI’s are many times criticized as money squeezing machines which charge very high cost. Which is not necessarily true considering their cost of funds and risks moreover they have to be sustainable. So here I think having a good name, image and Top management team helps a lot.”
Disadvantages of Micro Credit: Although microcredits are the keystone in terms of development in poor countries, it can also have its difficult. Indeed, the disadvantages of microcredits are:
Some microcredit institutions are often unpredictable.
Budget depends on subsidises from the government or NGOs.
Fig 1: Current Microcredit Network of Grameen Bank
History of Grameen Bank: “The founder of Grameen Bank Muhammad Yunus open up the idea of ‘micro-credit’–minuscule loans to the very poor. The bank currently lends more than $500 million a year with a repayment rate of better than 97 percent. Its Group Savings Funds have assets of $186 million. Grameen Bank operates 1,100 branches in half of Bangladesh’s nearly 80,000 villages. The program has been successfully replicated in dozens of countries, including the Philippines, Malaysia, Vietnam, South Africa, and Bolivia. It has also been applied to inner city and rural poverty in rich nations in North America and Europe.
The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, Head of the Rural Economics Program at the University of Chittagong, launched an action research project to examine the possibility of designing a credit delivery system to provide banking services targeted at the rural poor. The Grameen Bank Project (Grameen means “rural” or “village” in Bangla language) came into operation with the following objectives:
Extend banking facilities to poor men and women.
Eliminate the exploitation of the poor by money lenders.
Create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh.
Bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves.
Reverse the age-old vicious circle of “low income, low saving
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