**Micro-Finance in Global Perspectives** Microfinance, with its roots dating back centuries and its modern evolution driven by pioneers like Dr. Muhammad Yunus, represents a powerful force in global finance. Its historical journey encompasses early community-oriented pawnshops, 19th-century cooperative lending banks in Europe, and the birth of "modern microfinance" in rural Bangladesh. Over the years, microfinance has grown into a global movement, attracting substantial foreign investments and involvement from large banking institutions. With a diverse range of financial services, including small loans, savings, and insurance, microfinance aims to promote financial inclusion and empower low-income individuals, particularly women, across the world. Its adaptability, sustainability, and emphasis on entrepreneurship make it a critical tool in the fight against poverty and a key driver of economic development on a global scale. The global microfinance market continues to expand, offering hope and opportunity to millions of people who lack access to traditional banking services.

1. MICRO-FINANCE
IN GLOBAL PERSPECTIVE
Objectives:
1. To understand the origin of Micro-Finance
2. To understand the Concept of Micro-Finance
3. To identify the Key Components of Micro-Finance
4. To know the Mechanism of delivery of Micro-Finance
5. To differentiate the Micro-Finance and Micro Credit
6. To analyze the Features and Characteristics
7. To evaluate Micro-Finance in Global Perspective
Prepared by
Bijoy Das
Assistant Professor,
DLLE, NBU
Unit-III: Micro Finance and Self Help Group
Course: DSE-3.2: Rural Credit and Banking
MA in Rural Development
Department of Lifelong Learning and Extension
University of North Bengal

2. INTRODUCTION
• Its plays a crucial role in providing financial support to small entrepreneurs,
especially in impoverished regions, enabling them to establish businesses
and improve their livelihoods.
• Money is required for every single step in the business life cycle.
• Microfinance is about providing finance to meet the needs of small
entrepreneurs, enabling them to establish businesses on a small scale and
offering a source of livelihood to people from poor villages.
• It aims to increase the standard of living in an optimistic manner.

3. THE HISTORY OF MICROFINANCE
• The history of microfinance is a testament to humanity's determination to bridge
this gap and empower those in need. The history of microfinance traces its roots
back through various historical milestones.
• 1. Early Origins:
In the 15th century, Franciscan monks founded community-oriented
pawnshops. These early initiatives recognized the need for accessible financial
services.
• 2. Theoretical Foundations:
In the 1800s, the theorist Lysander Spooner wrote about the benefits of small
credits for entrepreneurs and farmers as a means of alleviating poverty.
• 3. 19th Century European Credit Unions:
Figures like Friedrich Wilhelm Raiffeisen played a significant role in founding
cooperative lending banks in rural Germany during the 19th century.
These institutions supported farmers and rural communities, marking a significant
step in the evolution of microfinance.

4. • 4. Birth of Modern Microfinance (1970s):
• The birth of "modern microfinance" is said to have occurred in the mid-1970s in rural
Bangladesh. Dr. Muhammad Yunus, a professor of economics at the University of
Chittagong, and Al Whittaker, tested practices and built institutions designed to bring
opportunities and risk-management tools to the doorsteps of poor people. The success of
the Grameen Bank, which serves over 7 million poor Bangladeshi women, has inspired the
world.
THE HISTORY OF MICROFINANCE

5. • 5. Global Growth and Recognition (1970s-80s):
• The 1970s and 80s witnessed rapid growth in the number of new
microfinance institutions appearing around the world. Many of them
were started by NGOs and funded by grants and subsidies from public
and private sources. These institutions demonstrated that the poor
could be relied upon to repay their loans, even without collateral,
highlighting the potential viability of microfinance as a business.
•
• 6. Transition to Sustainability (1990s):
• During the 1990s, the industry realized that it could not continue to
grow at such rates while relying solely on grant funding. As a result,
many institutions began to restructure themselves to attract
commercial investors. They adopted more formal business practices
and worked to improve efficiency and sustainability.
THE HISTORY OF MICROFINANCE

6. • 7. Emergence of PlaNet Finance (1998):
• In 1998, PlaNet Finance was formed as a not-for-profit organization. Its initial
objective was to use the internet and new communication technologies to
reinforce the capacities of NGOs in various sectors. Over time, it evolved into
PlaNet Finance, an international NGO whose mission is to fight against poverty by
developing microfinance.
• 8. The Grameen Bank Project:
• The Grameen Bank project, known as the "Village Bank," was born and currently
operates in over eighty-thousand villages with more than six million borrowers. In
2006, both Dr. Muhammad Yunus and Grameen were awarded the Nobel Peace
Prize for their work with the poor.
THE HISTORY OF MICROFINANCE

7. CONCEPT OF MICRO FINANCE
The term “micro-finance” has been given a working definition
by the Task Force on Supportive Policy and Regulatory
Framework for Micro-finance set up by NABARD in
November 1998 as:
1. “provision of thrift/Saving,
2. credit and
3. other financial services and products of
4. very small amounts
to the poor in rural, semi-urban and urban areas for enabling
them to raise their income levels and improve living
standards”.

8. DEFINITION OF MICROFINANCE:
• Microfinance is a comprehensive term that encompasses various financial
services and products provided to low-income individuals, particularly
women, who often lack access to traditional banking services.
• These services are aimed at improving their income levels and living
standards.
• Microfinance is defined as the provision of various financial services and products,
including small loans, savings accounts, insurance, and remittances, to low-income
individuals, especially women.
• These services aim to enable the poor to raise their income levels and improve their
living standards.
• The term "microfinance" no longer exclusively refers to small-value loans for the poor. It
increasingly encompasses a wide array of financial products, including payments,
savings, and insurance, tailored to meet the specific needs of low-income individuals.

9. KEY COMPONENTS OF MICROFINANCE
• 1. Saving/Thrift: Encouraging savings among clients to build financial
resilience.
• 2. Credit: Providing small loans to individuals, often for
microenterprise development, without requiring traditional collateral
• 3. Insurance: Offering insurance products to protect against financial
risks.
• 4. Remittances: Facilitating the transfer of funds, especially for
migrant workers sending money back to their families.

10. DELIVERY MECHANISM
Microfinance can be delivered through two primary mechanisms:
• 1.Relationship-based banking: Providing financial services to individual
entrepreneurs and small businesses.
• 2.Group-based models: Allowing groups of entrepreneurs to apply for
loans and other services collectively, often with shared responsibility
for repayment.

11. GOAL OF MICROFINANCE
• The ultimate goal of microfinance is
• to enhance financial inclusion by ensuring that low-income
households have access to a variety of affordable financial
services tailored to their needs.
• This includes savings, credit, insurance, remittances, and other
financial tools.
• Microfinance institutions (MFIs) have emerged as key players in
delivering these services, often using innovative approaches
such as group lending and flexible repayment terms to reach
their clients, who may have limited access to traditional banking.

12. MICROFINANCE VS. MICROCREDIT:
• Microfinance is a broader category of services that includes microcredit,
which specifically refers to providing credit services to poor clients.
• These terms are sometimes used interchangeably, leading to confusion.
• Microcredit is a subset of microfinance and specifically refers to the
provision of credit services to poor clients.
• However, the term "microfinance" is often used more broadly to
encompass a range of financial services beyond credit, including savings
and insurance.

13. FEATURES AND CHARACTERISTICS OF
MICROFINANCE:
• 1.Financial Inclusion: Microfinance aims to include low-income individuals,
particularly women, in the formal financial system. It provides access to a range
of financial services that were traditionally inaccessible to this demographic.
• 2.Small Loan Amounts: Microfinance typically involves providing small loans,
which are well-suited for microenterprises and income-generating activities.
These loans are often too small to be of interest to traditional banks.
• 3.No Traditional Collateral: Microfinance institutions (MFIs) offer loans without
requiring traditional collateral, such as property or assets. Instead, they often use
alternative mechanisms like group guarantees or social collateral

14. • 4.Diverse Financial Products: Beyond credit, microfinance includes a variety
of financial products, including savings accounts, insurance, and remittances.
remittances. This diversity caters to the multifaceted financial needs of
clients.
• 5.Client-Centered Approach: Microfinance is client-focused, considering the
unique circumstances and financial goals of each individual or group. This
personalized approach helps clients make the most of available services.
• 6. Empowerment and Poverty Alleviation: Microfinance is seen as a tool for
poverty reduction and economic empowerment. By providing access to
financial resources, it enables individuals to improve their income, living
standards, and overall quality of life.
FEATURES AND CHARACTERISTICS OF
MICROFINANCE:

15. • 7. Innovative Delivery Mechanisms: Microfinance employs various delivery
mechanisms, including relationship-based banking and group-based models.
These mechanisms help reach clients efficiently and reduce the risks associated
with lending to the poor.
• 8. Sustainability and Commercialization: While microfinance initially relied on
grants and subsidies, it has transitioned toward sustainability. Many MFIs have
adopted more formal business practices to attract commercial investors and
reduce dependency on external funding.
• 9. Global Reach: Microfinance has a global presence, operating in over 100
countries and serving millions of clients worldwide. It adapts to local contexts and
needs while adhering to core principles.
FEATURES AND CHARACTERISTICS OF
MICROFINANCE:

16. • 10. Social Impact: The impact of microfinance extends beyond financial gains. It
can empower women, improve education, and enhance social cohesion within
communities. The Grameen Bank's success, for example, led to Dr. Muhammad
Yunus and the bank itself being awarded the Nobel Peace Prize in 2006.
• 11. Diverse Institutional Types: Microfinance institutions come in various forms,
including commercial, quasi-commercial, and nonprofit organizations. Each type
serves its target population differently, addressing specific financial needs and
goals.
• 12. Adaptation to Changing Needs: Microfinance continually evolves to meet the
changing financial needs of individuals, households, and small businesses,
especially those living in poverty. This adaptability ensures relevance over time.
FEATURES AND CHARACTERISTICS OF
MICROFINANCE:

17. • 13. Global Investment: The microfinance sector has attracted substantial foreign
investment, including from large banking institutions and microfinance investment
firms. This investment has helped expand its reach and impact.
• 14. Promotion of Entrepreneurship: Microfinance encourages entrepreneurship by
providing the necessary financial support for individuals to start or expand small
businesses. It contributes to job creation and economic development.
• In summary, microfinance is characterized by its focus on financial inclusion, small loan
sizes, absence of traditional collateral, a wide range of financial products, client-centric
approach, and its role in empowering individuals and communities while addressing
poverty and promoting economic development on a global scale.
FEATURES AND CHARACTERISTICS OF
MICROFINANCE:

18. MICRO-FINANCE IN GLOBAL PERSPECTIVE
• Microfinance institutions (MFIs) currently operate in over 100 countries, serving
more than 92 million clients worldwide.
• Microfinance has historical roots dating back to the early 1700s when Jonathan
Swift created the Irish Loan Fund to provide small loans to the poor in Ireland.
• By the 1800s, similar banking systems targeting the poor emerged across Europe,
including Friedrich Wilhelm Raiffeisen's rural credit union in Germany, which
aimed to break the cycle of borrowing and repayment.
• Credit unions, owned by members, spread globally by the end of the 1800s

19. MICRO-FINANCE IN GLOBAL PERSPECTIVE
• In Latin America, microfinance institutions were often owned by the government or
private banks and were less efficient than their European counterparts.
• Donor and government subsidies for loans in the 1950s had limited impact, as funds
didn't reach the neediest farmers and interest rates were unsustainable.
• The first commercial microfinance institution, BancoSol, was founded in Bolivia in 1992,
leading to a shift towards sustainable microfinance.
• Microfinance investment firms and large banking institutions like Credit Suisse,
Deutsche Bank, and Citigroup have entered the industry.

20. MICRO-FINANCE IN GLOBAL PERSPECTIVE
• By the end of 2008, nearly $15 billion in foreign investment had been channeled into MFIs, with
over 10,000 institutions serving 16 million people.
• The global microfinance market was valued at an estimated $187 billion in 2022, and is
expected to exceed $488 billion by 2030.
• MFIs are categorized into commercial, quasi-commercial, and nonprofit institutions, each
serving its target population differently.
• The future of microfinance remains essential, as estimates suggest that millions of people still
lack access to financial services that could improve their economic situation and living
conditions.
• Microfinance and other alternative ways to encourage and support entrepreneurship are likely
to play a crucial role in the global economy's development.