Microfinance as a concept has been around for a long time but has gain prominence only in the last three decades. Savings and credit groups with the likes of "Susus" of Ghana, "Chit funds" in India, "Tandas" in Mexico, "Arisan" in Indonesia, "Cheetu" in Sri Lanka, "Tontines" in West Africa, and "Pasanaku" in Bolivia, as well as numerous savings clubs and burial societies found all over the world have been around for centuries.
One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland. In 1800s, various larger and more formal savings and credit institutions like People’s Banks, Credit Unions and Savings & Credit Co-operatives emerged in Europe, these were organized primarily among the rural and urban poor.
By early 1900s, various adaptations of these models were used in parts of rural Latin America. The primary aim of these institutions were modernization of the agriculture sector, increased commercialization of the rural sector by mobilizing idle savings and increasing investments through credit. In most cases, these institutions were not owned by the poor themselves, as they had been in Europe, but by government agencies or private banks. Over the years, these institutions became inefficient and at times, abusive.
Between the 1950s and 1970s, the focus shifted to agricultural credit to marginal farmers, in hopes of raising productivity and incomes. Most of the lending institutions were state-owned development finance institutions providing concessional loans. These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of better-off farmers.
Meanwhile, starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries extended tiny loans to groups of poor women to invest in micro-businesses. This type of microenterprise credit was based on solidarity group lending in which every member of a group guaranteed the repayment of all members. These programs had an almost exclusive focus on credit for income generating activities targeting very poor (mostly women) borrowers.
One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland. In 1800s, various larger and more formal savings and credit institutions like People’s Banks, Credit Unions and Savings & Credit Co-operatives emerged in Europe, these were organized primarily among the rural and urban poor.
By early 1900s, various adaptations of these models were used in parts of rural Latin America. The primary aim of these institutions were modernization of the agriculture sector, increased commercialization of the rural sector by mobilizing idle savings and increasing investments through credit. In most cases, these institutions were not owned by the poor themselves, as they had been in Europe, but by government agencies or private banks. Over the years, these institutions became inefficient and at times, abusive.
Between the 1950s and 1970s, the focus shifted to agricultural credit to marginal farmers, in hopes of raising productivity and incomes. Most of the lending institutions were state-owned development finance institutions providing concessional loans. These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of better-off farmers.
Meanwhile, starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries extended tiny loans to groups of poor women to invest in micro-businesses. This type of microenterprise credit was based on solidarity group lending in which every member of a group guaranteed the repayment of all members. These programs had an almost exclusive focus on credit for income generating activities targeting very poor (mostly women) borrowers.
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