A few weeks ago on Handful, I talked abut financial inclusion: the idea that everyone should have access to and the ability to use financial services. This week, I talked about microfinance, one of the primary means of realizing financial inclusion, and its creator, Muhammad Yunus.
What is Microfinance?
Basically, microfinance is a specific set of financial services created for the unbanked and financial nomads, those who don’t have access to traditional financial services. Microfinance is a relatively new concept that began in developing countries like India and Bangladesh. These financial services include microcredit and microloans– the prefix “micro” in microfinance refers to the amount of money lent. Microloans are given in small amounts – think business loans as small as 100 or 200 dollars.
Microfinance is a fascinating concept, at least in my opinion– it’s changed how the developing world uses money.
Muhammad Yunus, the Father of Microfinance
Muhammad Yunus is called the pioneer of microcredit and the father of microfinance. He won the Nobel Prize in 2006. But his life started much more simply than his accomplishments would suggest.
Born in Bangladesh, Yunus saw the realities of poverty in his community. He noticed that basket weavers in his village who were very skilled, but couldn’t turn a profit from their craft. Because they were considered credit risks, these weavers could only get business loans to buy the materials they needed at very high interest rates. Despite their skills, after repaying these loans, their businesses didn’t profit. Yunus noticed this problem and started making his own loans to groups of weavers. The loans were repaid, and for the first time these weavers were able to profit from their business. From that experience, microcredit was born.
Yunus founded Grameen Bank in 1983. The bank is unique in that it offers microloans to businesses and individuals. Grameen Bank doesn’t require collateral from its clients and allows individuals to build economic security through credit.
As of November of 2019, Grameen Bank had 9.6 million members, 97 percent of whom are women. The concept has been replicated dozens of times in other countries.
In founding Grameen Bank, Yunus took his idea of microfinance and put it into action. That concept is changing the lives of millions by providing them access to the resources and capital they need to escape poverty and become financially independent.
Credit as a Human Right
We all have a basic understanding of human rights. They’re the most basic rights that every person has, no matter where they live or who they are. Human rights include the right to clean water, the right to education, and the right to be free of slavery.
Yunus believes that credit is also a human right. He said, “Every poor person must be allowed a fair chance to improve his/her economic condition. This can be easily done by ensuring his/her right to credit. If the existing financial institutions fail to ensure that right, it is the obligation of the state and the world community to help find alternative financial institutions which will guarantee this fundamental human right. This is basic for the economic emancipation of the poor, in general, and poor women, in particular.”
Basically, Yunus believes that microcredit, and microfinance more generally, are so powerful for economic development and poverty alleviation that everyone deserves access to these financial tools. Credit provides the means to start and grow a business, and through that to escape poverty and provide for oneself, ultimately guaranteeing access to other rights like food and education.
Every poor person must be allowed a fair chance to improve his/her economic condition.
Muhammad Yunus
This has been a revolutionary if not controversial stance on credit. While Yunus’ Grameen Bank has been very effective in providing the means for the poor to escape poverty, some think that labelling credit as a human right is one step too far.
John Gershman and Jonathan Murdoch, New York University professors at the Financial Access Initiative, argue that credit is undoubtedly valuable to the poor. However, they see the right to credit as a subset of the right to be free of discrimination. Gershman and Murdoch argue that the poor shouldn’t be denied access to credit just as they shouldn’t be denied access to other goods and services based on their socioeconomic status.
Ultimately, Gershman and Murdoch write that, “The easiest, narrowest, and most direct way of understanding a right to credit would be as the elimination of legal obstacles to providing access to credit, with all other parameters held constant.”
Based on what you’ve learned about credit and microfinance, do you think that credit is a human right? Let us know in the comments below!
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