Chapter 11: The successes and challenges of microfinance
Microfinance was founded as a tool to break the cycle of poverty in which many residents of developing countries are trapped. Muhammad Yunus, one of the early microfinance leaders, believes that the poor are systematically marginalized from formal channels of finance and face numerous discriminatory barriers to capital accumulation, which frequently prevents them from retaining ‘the genuine results of their labor’ (Yunus 2003, p._114–15). His interpretation of how poverty is created and maintained led him to found Grameen Bank in 1976 in Bangladesh. Buoyed by high repayment rates and reductions in poverty, the unequivocal success of Grameen Bank inspired the replication of Grameen-style microfinance institutions (MFIs) throughout the developing world in subsequent years. Today there are thousands of MFIs operating in nearly every developing country.Initially many MFIs followed Grameen’s lending methodology, but as the industry evolved so did the operating practices. Rather than solely distributing microcredit for income-generating entrepreneurial activities, MFIs began providing services related to savings, insurance, remittances and consumer credit. Lending methodology also changed, as MFIs started giving loans to individuals in addition to solidarity groups, to men rather than solely women, and to the moderately poor instead of only the impoverished. The most controversial shift involved the commercialization of microfinance activities, as some MFIs began operating on a for-profit model.
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