WomensTrust

History

The concept of microcredit can be traced back to portions of the Marshall Plan at the end of WWII in the middle of the 20th century or even back to the mid-1800s and the writings of abolitionist/legal theorist Lysander Spooner, who wrote concerning the benefits of numerous small loans for entrepreneurial activities to the poor as a way to alleviate poverty. There is also a connection to New York's Providence Fund. However, in its most recent incarnation, it can be linked to several organizations starting in the 1970s and onward.

Opportunity International

In 1971, Al Whittaker resigned as president of Bristol Myers and established Opportunity International’s first US office in Washington DC. The first loan was made to Carlos Moreno in Colombia to expand his one-man spice and tea business , cited in The Economist as the first "micro-loan". Opportunity International provided opportunities for people in chronic poverty to transform their lives by creating jobs, stimulating small businesses, and strengthening communities. Small loans ranging from $25 to $500 helped poor families lift themselves out of poverty with dignity. Other offices can be found in Australia, Great Britain and Canada, each targeting countries within their region.

ACCION International

In 1973 Accion International, a Peace Corps-like group, started to switch their focus toward providing economic opportunity to poor people instead of working on construction/infrastructure projects in order to create lasting improvements in the lives of those they were helping. Their plan first appeared in Recife, Brazil in 1973 when ACCION staff began to offer microloans to poor people eager to start small businesses. ACCION offered an exciting alternative to the under-served population that were ineligible for traditional loans and wanted to avoid the exploitive lending practices of loan sharks.

Within four years, the experiment had shown its success in having provided 885 loans with a repayment rate of over 90%. The loans also helped to create or stabilize 1,386 new jobs. This success in making a lasting impact in peoples lives, as contrasted with the previous projects steered ACCION firmly in the direction of being a microfinance organization. Since this modest beginning ACCION has expanded its microlending operation to countries throughout South and Central America, the United States, Africa and India.

ACCION claims (and recorded dates seem to indicate) that these loans were the first modern pioneers of microcredit.

Muhammad Yunus and Grameen Bank

Around the same time as ACCION's experiment, and apparently independently, Muhammad Yunus, a U.S.-educated professor of economics started a similar experiment. In 1974 during a famine in his native Bangladesh Yunus discovered that very small loans could make a significant difference in a poor person's ability to survive, but that traditional banks were not interested in making tiny loans to poor people, who were considered poor repayment risks. His first loan consisted of $27 from his own pocket which he lent to 42 people including a woman who made bamboo furniture, which she sold to support herself and her family.

In 1976, Yunus founded the Grameen Bank to make loans to poor Bangladeshis. Since then the Grameen Bank has issued more than $5 billion in loans to several million borrowers - at the close of 2005 the number of outstanding loans is more than 4 million. To ensure repayment, the bank uses a system of "solidarity groups": small informal groups, nearly all of them exclusively female, that meet weekly in their villages to conduct business with representatives of the bank, and who support one and other's efforts at economic self-advancement. As it has grown, the Grameen Bank has also developed other systems of alternate credit that serve the poor. In addition to microcredit, it offers housing loans as well as financing for fisheries and irrigation projects, venture capital, textiles, and other activities, along with other banking services such as savings.

The success of the Grameen model has inspired similar efforts throughout the developing world and even in industrialized nations including the United States. Many, but not all, microcredit projects also emulate its emphasis on lending specifically to women. Close to 96 percent of Grameen loans have gone to women, who have been found to be much more likely than men to repay loans and to devote their earnings to serving the needs of the entire family. Originally the program started with men and women, but later focused on women when data showed a dramatically lower credit risk in women.

Today

The World Bank estimates that there are now more than 7,000 microfinance institutions, serving some 16 million poor people in developing countries. According to Le Monde newspaper, World Bank experts estimated that 500 million people benefited from these small loans (about 80 euros), on a total of three billion poor people. Cambodia and Kenya were put forward as examples. Asia and the Pacific region represent 83% of the opened accounts in developing countries, which is equivalent to 17 accounts for 100 persons. In November 1997, more than 2000 delegates from 100 countries gathered at a Microcredit Summit in Washington, DC, with the goal of reaching 100 million of the world's poorest families, with credit for self-employment and other financial and business services by the year 2005. Support for these goals has come from prominent world leaders and major financial institutions.

Women have become the center focus of many microcredit institutions and agencies worldwide. The reasoning behind this is the observation that loans to women tend to more often benefit the whole family than loans to men do. It has also been observed that giving women the control and the responsibility of small loans raises their socio-economic status, which is seen as a positive change to many of the current relationships of gender and class. However, there is an ongoing debate about whether microcredit loans have the power to truly change established political and economic relationships.