Summary
Microcredits are a variant of the traditional lending system that is intended to reach the neediest groups and without resources that cannot access financing. This new form of credit granting, which was born in India in the 1970s, has been evolving gradually in such a way that there are currently different applications and variants of the initial model. In this paper I want to focus on Muhammad Yunus, winner of the 2006 Nobel Peace Prize for his microfinance project, better known as the father of microcredits, a program that not only offers material goods (the loan of money), but also it also teaches the participant to achieve them and develop the ability to get ahead on their own. One of the issues that goes hand in hand with microcredits is poverty.
Abstract
Microcredit is a variant of the traditional lender are intended to reach the most needy and destitute who can not access finance. This new form of loans, who was born in India in the seventies, has gradually so that there are different applications and variations of the initial model. In this paper I want to focus on Muhammad Yunus, winner of the Nobel Peace Prize in 2006 for his project, earning, best known as the father of microcredit, a program that not only provides material goods (money lending), but also teaches the participant to get and develop the capacity to cope on their own. One of the issues that goes along with microcredit is poverty.
Development
What is a microcredit?
A microcredit is a small loan offered to a person without resources who does not have any guarantee or guarantee of repayment, by a bank or other financial institution. Potential clients of entities that offer microcredits are normally below the poverty line; many are peasants, artisans, single women, heads of families, pensioners, etc. Therefore, we are not talking about a group with higher education that intends to build a large company; These are people, many of them illiterate, who need to create a self-employment business and who, therefore, must learn to manage the credit requested to start their project. The objective of the microcredit is to send a certain sum of money, under the most favorable conditions possible,to small entrepreneurs from the most disadvantaged social sectors, in such a way that they can finance a business project that reverts to them the amount necessary to obtain financial autonomy. This double dimension of microcredits means that we can place them within the so-called social economy.
We go back in time to arrive at the idea that at the time promoted the micro credit initiative. In 1973, in the Brazilian city of Recife, a group of volunteers from an association called Acción, began to realize the unemployment problem that the rural exodus was causing, giving rise to precarious and informal employment. Workers survived thanks to the black economy and had access to the raw materials with which to work through usurious moneylenders who charged interest rates of up to 10 percent per day. In turn, while Brazil was beginning to analyze the problem, Muhammad Yunus, in Bangladesh, had the following question in mind:What if bankrupt entrepreneurs could access normal loans at reasonable interest rates? This initial idea was the trigger for what we now know as microcredits, and it was then that small loans began to be granted under non-abusive financial conditions. In this way, it is from this moment on that we can speak of microcredits, “micro-businesses” that would give rise to a business fabric of gradual and growing consolidation. The micro-credit system was easily imposed as a useful system capable of rescuing the most disadvantaged from marginalization and precarious employment; however, each project had to be adapted to the different circumstances of the social context. In 1976 Yunus founded the Grameen Bank to provide loans to those most in need in Bangladesh.To ensure the repayment of loans, the bank began to use a system of “solidarity groups”, that is, small, informal groups that apply for loans together and whose members act to guarantee the repayment of the loan and support each other. to others in the effort to improve financially. Several were the adaptations of this system; An example of this is the International Foundation for Community Assistance (FINCA), which stands as a pioneer of the rural banking model, which is built around the Grameen (Yunus association) methodology that grants credits in rural areas totally forgotten by the traditional banking system. However, the microcredit system showed, soon after,symptoms of exhaustion due to the absence of a large source of capital with which to finance the various loans. For this reason, in the Latin American case, Acción's lenders entered the international market willing to obtain guarantee funds, giving rise to Banco Sol which, under the protection of Acción, became the first and largest Latin American bank aimed at micro finance. Under the supervision of Acción, in 1992 Banco Solidario SA was also founded which, in just 6 years of continuous and sustained growth, multiplied the number of borrowers by four. We can imagine that many more microcredit concessionaire financial entities were established in this region, but these three initiatives that we have just mentioned have been the most successful and important in Latin America.
On the other hand, many of the initiatives launched in the eighties, with the turn of the decade began to rethink the need to change their range of products. In this sense, both Grameen Bank and Banco Sol increased their offers, promulgating new projects: from individual loans to home financing, through loans for long-term investment, bank accounts, cards, transfers, insurance, etc. The first offer was a huge step that many projects would study in detail, insisting on the individual aspect of microcredit, which for many augured a new and promising future for microcredits. An example of such a study is carried out by Dean Karlan, a professor at Yale University,which experimented on the individual microcredit side with considerable success last year. However, a significant number of microfinance institutions did not decide to trust the individual system, since with it all possible return guarantees disappeared; starting an individual program would imply relying fully on the goodwill of the borrowers and not having any kind of repayment guarantees other than their word.
This was the case of Acción which, in the same way as Yunus, using the Bulak system (the name given to the methodology followed by Grameen Bank), launched a system of loans to groups composed of three to ten members, to ensure the repayment of the loan, for which the entire group was responsible. Each member of the same received an amount of money appropriate to their project, but always in similar amounts to avoid comparison grievances. To guarantee repayment, a stimulus-penalty system was established: if a group wanted to receive more loans, it had to prove a good record in its payments so that, if one of the members did not pay, it harmed the rest due to its non-compliance.
On the other hand, a different model was also erected in this period of time, halfway between the group and individual models. The program, carried out by the FINCA association, consisted of small groups of people who created a common fund of money, forming their own “bank”. Thus, mainly carried out in rural areas, the members could request money from the common fund to purchase goods. This method establishes a strong group pressure, since the money belongs to the members from the beginning and they will do everything possible to grow the common fund through interest, penalizing any individual who does not make the relevant return. However, this system is completely unrelated to any financial institution,it depends exclusively on a group of people who want to put an amount of money in common that will grow with the interest that each member pays for the loan of a certain amount of money and, therefore, we cannot consider it within microcredit initiatives.
In the mid-1970s, the first organizations that began to give or organize microcredits were NGOs, supported by donations from philanthropists around the world. At the beginning of the eighties, these organizations began to realize that the microcredit system could be sustainable, and they began to create strategic alliances with local banks so that they could provide financing, while they provided guarantees. The reluctant banks did not get involved in the system until the early 1990s, when the fruits of initiatives founded in the 1970s began to reap and the system began to take on a profitable business form. As we have already pointed out above,Grameen experienced tremendous success, promulgating similar programs in a large number of countries, including developed countries. Some of them emulate Yunus's emphasis on the borrowers being women, suffering the most from poverty and, to a large extent, more likely to repay loans out of a sense of responsibility to their family. Thus, currently, according to the World Bank, there are an estimated 7,000 microfinance institutions, serving about 16 million clients in the world. The Microcredit Summit in New York set the goal of reaching 100 million borrowers from the world's poorest families by 2005.Some of them emulate Yunus's emphasis on the borrowers being women, suffering the most from poverty and, to a large extent, more likely to repay loans out of a sense of responsibility to their family. Thus, currently, according to the World Bank, there are an estimated 7,000 microfinance institutions, serving about 16 million clients in the world. The Microcredit Summit in New York set the goal of reaching 100 million borrowers from the world's poorest families by 2005.Some of them emulate Yunus's emphasis on the borrowers being women, suffering the most from poverty and, to a large extent, more likely to repay loans out of a sense of responsibility to their family. Thus, currently, according to the World Bank, there are an estimated 7,000 microfinance institutions, serving about 16 million clients in the world. The Microcredit Summit in New York set the goal of reaching 100 million borrowers from the world's poorest families by 2005.It is estimated that there are some 7,000 microfinance institutions, serving some 16 million clients in the world. The Microcredit Summit in New York set the goal of reaching 100 million borrowers from the world's poorest families by 2005.It is estimated that there are some 7,000 microfinance institutions, serving some 16 million clients in the world. The Microcredit Summit in New York set the goal of reaching 100 million borrowers from the world's poorest families by 2005.
Despite the skepticism of many towards the most committed aspect of microcredit with poverty, 2005 was proclaimed the International Year of Microcredit by the General Assembly of the United Nations, in order to recognize the contribution of said financial tool to the alleviation of poverty. Thus, in December 2003, the Member States approved a series of initiatives that should be carried out during this year. During 2005, the United Nations actively engaged in monitoring activities related to microcredits. Thus, the objective of the Year 2005, as the International Year of Microcredit, was to foster global commitment to microcredits, and consequently, to inclusive financial sectors. The Year as such does not represent an isolated event at all,but rather the pinnacle of a continuous monitoring process to ensure sustainable microfinance and its expansion. Thus, finally, through a large number of activities and conferences in the Conceptual Framework of the Global Strategy for the International Year of Microcredit, the United Nations solidified the microcredit financial system throughout a year dedicated specifically to said system, professing a great confidence in its poverty alleviation power.The United Nations solidified the microcredit financial system over a year dedicated specifically to that system, professing great confidence in its poverty-alleviating power.The United Nations solidified the microcredit financial system over a year dedicated specifically to that system, professing great confidence in its poverty-alleviating power.
Advantage
One of the most important benefits of this type of credit is the regional approach, since a large part of it is distributed in the rural areas of greatest need in the country. They are also characterized by being agile, providing facilities in credit management, and being quite flexible in their processing, since there are not so many formality requirements to comply with.
When someone applies for a microcredit, they do so because they have a productive business that they know perfectly well and in which they have put all their potential.
Microcredits first link your family members because they are the ones who help you in your business and ends up generating wealth for you with your income growth.
Disadvantages
Taking microcredit as a credit opportunity to get other loans sometimes becomes an expensive mistake.
The modality works like this: the person makes the loan, pays it on time, is registered with a good credit history and uses that information to request another microcredit in two entities at the same time, even in more banks, until reaching the point of over-indebtedness and not to pay.
Another disadvantage that arises is when the microcredit is used for a purpose contrary to the main one. Some people when they meet the requirements to disburse the loan, they invest it in paying personal debts, which will not generate profits, they only get into debt.
conclusion
This type of loan is being imposed with enough authority and efficiency among those who are beginning to mature ideas of large and small businesses. We need an inclusive financial sector that allows poor and low-income people to access credit, insurance, remittances and savings options according to their means. Microcredit is a profitable business and an opportunity for development insofar as it contributes to building micro-businesses to generate employment. For me, Mohamed Yunus is the initiator of a social organization, which not only fights for a loan to be given to the most needy but also seeks to reduce poverty.
Bibliography
- García, Antonio-Claret, and Jesús Lens, Microcredits. The silent revolution. Debate, Barcelona, June 2007. Microcredits. The solidarity business, information in the public domain. Muhammad Yunus, Social Enterprises. Muhammad Yunus, The Poor's Banker.
