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Subscribe to this list via RSS Blog posts tagged in Microfinance

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When Muhammed Yunus, winner of the 2006 Nobel peace prize jointly with Grameen Bank "for their efforts to create economic and social development from below," pioneered microcredit to help those in poverty improve their lives, it wasn’t meant to end up like this.  In an opinion piece in the New York Times entitled “Sacrificing microcredit for megaprofits,” Yunus sounds deeply saddened that the almost impossible challenges he and Grameen Bank have overcome are being derailed by increasing commercialization of microcredit.  In India there have been large-scale problems of borrowers defaulting on microloans, closely linked to an increasing number of suicides amongst the poorest who have no ability to settle their debts, devastating families and communities. Yunus himself is also under pressure, particularly in his home country of Bangladesh, where there have been sharp attacks on him personally as well as on Grameen. What’s gone wrong? What’s the way forward?  As businesses step up to the challenge of integrating social responsibility into their business models, how do we avoid making a killing in the completely wrong sense of the phrase?

Microcredit’s reason for being is to provide loans to low income clients, both individuals and micro-businesses, to help them move out of poverty (note: microcredit is part of microfinance which includes savings, fund transfers and more). People with little or no cash income or assets are not served by the traditional financial system – in our recent special report on Retail Banking we note that the “great unbanked” includes around 2.5 billion adults, more than half of the world’s adult population, who do not use (or have access to) any formal (or semi-formal) financial services.  Without access to financial services, including credit, many of these people are at the mercy of local loan sharks and do not necessarily have the means to help lift themselves out of poverty.

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