Unit 4: Microfinance

An excellent interview with Muhammad Yunus explaining the future of "social business" and a nice activity to get students to understand microfinance.....

The Grameen Bank was founded by Muhammad Yunus (winner of the 2006 Nobel Peace Prize) with the following objectives:

• extend banking facilities to poor men and women
• eliminate the exploitation of the poor by money lenders;
• create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh;
• bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves; and
• reverse the age-old vicious circle of "low income, low saving & low investment", into virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income".

An interesting classroom activity is to go get students to contribute £5 each and then visit the Lend with Care website in order to decide which person to "microloan". Students can read blurbs about each Entrepreneur, understand what the money would be used for and how microfinance works. At the end of the repayment period one can chose to either withdraw the funds or invest in another project.

Microfinance has existed in different guises for years. A good example that has been used in Indian villages is chit funds. Typically used by women who contribute a small amount each month and the winner of the monthly lottery takes the pot. Nobody can win more than once so everyone gets back roughly what they put in over the course of the year. If you win and don't have any major expense that month you are able to swap with someone who needs the money in return for a small donation and the promise that when they then win the lottery you receive the winnings. This excellent Economist article contains a nice description of chit funds in India.

A recent interview with Muhammad Yunus outlines his idea that social business or non-dividend business as he nicely terms it will flourish hand in hand with traditional profit maximising business in the years ahead.