Some Drawbacks of Microfinance


Microfinance has become the new buzz word in academia as the primary solution to alleviating poverty in the developing world.   The term microcredit is the allocation of small loans to impoverished individuals for the means of entrepreneurship ("Definition what is," 1998). Widespread popularity for this form of financial loaning system can traced back to Bangladesh and a professor with a very unique vision.   This revolutionary idea started when an economics professor from the Chittagong University took his class on a field visit to a low income town where they interviewed a woman who earned a living by selling bamboo stools ("Biography of dr.," 1998).   As he became more familiar with her situation he realized that she was unable to receive loans from formal banking institutions.   This was due to the fact that she didn’t have the steady income or collateral to gain access to such a loan to expand her business.   Without resolution or access to conventional banking she resorted to private money lenders to get the loan ("Biography of dr.," 1998).   Unfortunately, the interest on the loan was at an exploitative rate of ten percent which made it impossible for her to repay and exasperated her financial problems ("Biography of dr.," 1998).   Appalled by this story Muhammad Yunus (the economic professor) worked on a solution to not only resolve this individual’s dilemma but to eradicate poverty from the world("Biography of dr.," 1998) .

      Doctor Yunus dream to eliminate poverty worldwide began to transform into reality through his founding of a company called the Grameen Bank in 1983("A Short history," 1998). This small bank helped to give the most impoverished and unemployed people access to loans. Since 1983 this business helped economically disadvantaged people from all over Bangladesh deal with financial troubles but there is still a long way to go. His efforts were recognized worldwide in 2006 when both the Grameen Bank and Doctor Muhammad Yunus...