Microfinance

Microfinance has been continuously cited as the most powerful tool to alleviate poverty, but has this tool been used to its full potential?. Microfinance has contributed significantly in reducing, if not eradicating poverty in many parts of the world. Its success stories are pretty impressive but, the question of whether microfinance be a vehicle through which even greater and more critical contributions to global poverty alleviation might be made needs further research. Many governments are still hesitant to adopt this model to help the poor and needy, and many tried but gave up too early. Microfinance should be adopted with the aim of social benefit rather than personal economical profits. People involved in economic decision making should realize that putting a microfinance framework in place effectively is arduous and time-consuming task. It involves teaching and making people aware of the rules and benefits of microfinance. It is particularly difficult as poor people have almost negligible literacy rate and they are afraid of paperwork because they have never done it before.

The growth of microfinance is fueled not by market forces, rather it has been due to sincere and conscious efforts of some governments, NGO's and donors who view microfinance as an effective tool to eradicate poverty. There have been many revolutionaries who have shown how microfinance can be used most effectively. Mohd. Yunus, the founder of Grameen bank, is the most notable of them all. His model of Grameen bank has yielded unprecedented results. This bank has not only improved the standard of living of 5 million bangaldeshi families but has also succeded in making economic profits out of it. The success story of Grameen bank was a surprise to many economists. There are many lessons to be learnt from Grameen Bank model, especially for the governments of developing and underdeveloped Asian and African nations where poverty is widespread. Mohd. Yunus had to work really hard to find his way through red tapes and lack of awareness among his fellow citizens. But he was determined to bring a change in his society and so he did.

There are many things worth noticing in how he implemented his model of microfinance. Firstly, he was not in any kind of a hurry, he gave the poor time to absorb and get used to the idea. He focused on spreading awareness by appointing some student volunteers who would go door-to-door and talk to the villagers about the benefits of microfincance. Though people would reject the idea of taking a loan at first, but the volunteers were trained to accept it and not get disheartened. Instead they were taught to be humble and keep trying such that at some point people would agree to give it a try. Secondly, he never gave loans to individuals, rather he would ask the borrowers to form a group, and the loan was granted to the group. This helped him reduce the rate of defaults. As even if one person in the group repays the loan, it inspires the others to do the same. And people in the group had someone to watch their back if they deviated from the right and proposed use of money. This would be reported to the volunteer assigned and then he would try to reslove the matter. Thirdly, Grameen Bank focused on lending to women. Yunus found that women members of poor and needy families are more hard-working and inclined to take care of their children in the best possible manner than the male members. This zeal and determination of the women borrowers assisted them to earn enough to repay the loan as well as run their families. Fourthly, the Bank kept the paperwork to be minimal and borrowers did not come to bank for loan, rather bank went to the doors of the poor. One or two volunteers were assigned to each village who would note down the name of the borrower with the date and amount of the loan and would visit the village once in a week to collect the installments. Minimizing the paper work avoided red-tapes and delays in allocating the loan. Fifthly and most importantly, Yunus was not afraid of incurring a loss, infact he did suffer a loss at first, but he kept his belief alive. Grameen Bank would not send a recovery guy if somebody defaulted, instead, they were provided assistance. Assigned volunteer would speak to the defaultor about what led to the failure and if the borrower appeared reasonable, she was offered another loan to start all over again. Yunus's autobiography "Banker to the Poor" explains in details the efforts and hard-work of Grameen Bank to bring a change in the lives of poor Bangladeshis.

Though Mohd. Yunus pioneered a way to use microfinance effectively but his model cannot be applied in the exact same manner everywhere due to varying traditions and mindsets of the people. However, with little improvisations to suit the region's need, it can be used to fight poverty. It is up to the government and resourceful individuals of a nation to take a step forward and contribute to microfinance which helps the poor and at the same time conserves their dignity and respect. The only thing to be borne in mind is "every good thing takes time and nothing good comes easy".