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by: HealthyWealthynWise
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Microcredit is a new concept in banking in which tiny loans are given to the poorest of people to help them start a small business. The concept was created by Muhammad Yunus, an economics professor in Bangladesh. Unlike traditional loans, these small loans require no collateral, background check, or interest, and almost 100% are paid back in a timely manner.

Until the creation of microcredit, banks only loaned money in large amounts to people starting major companies. These loans were subject to approval and were charged interest. Now poor people have the opportunity to start businesses like street fruit stands or clothing repair shops in places where such is hard to find. Most loans are less than $1,000.

Because traditional banks don't usually offer microcredit, Muhammad Yunus founded Grameen Bank. He and the bank were jointly awarded the Nobel Peace Prize in 2006. Today the bank is operating about 2,500 branches in the poorest areas of Bangladesh serving approximately 80,000 villages. Surprisingly, the bank is 94% member-owned by people who either own no land or have less than an acre of land.

Most of the world's business owners are men, so obviously most of the loans are also in the name of men. This is another major difference between traditional and microcredit loans. Microcredit loans are given to women 96% of the time. In poor countries, women traditionally manage the basic needs like food and clothing, so it makes sense that they would open businesses to sell their excess.

Muhammad Yunus made his first personal loan in 1974. At that time, there was a famine in Bangladesh. People were struggling and turning to loan sharks. As a professor of economics, Yunus saw that the real world isn't anything like the theories taught in a classroom. He wanted to help these poor people dig themselves out of poverty.

More shocking than the poverty all around him was just how little Muhammad Yunus needed to do to help these people. His first loan was only $27, and it was made to a group of 42 women who were in trouble with loan sharks. They were able to pay off their interest-bearing loans and better their lives. When Muhammad Yunus brought the idea to banks, he was laughed out the door.

Microcredit and the Grameen Bank were founded because of one man's passion to make a difference. Sometimes the smallest changes to a person's life can have the biggest impacts to an entire community. Muhammad Yunus believes that everyone should have the right to better themselves. Loans should be available to the rich and poor alike.

Microcredit banks are the opposite of traditional banks in so many ways, yet the repayment rate is still almost 100%, even when disasters like floods or earthquakes happen. There is no need for lawyers or collateral. Payments are made by honest people working hard to change their lives and the lives of their community.

About the Author

Muhammad Yunus is the creator of microcredit, which enables poor people in countries around the world to obtain loans. Go to Muhammad Yunus to find out how Grameen Bank became a lifesaver for millions.

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