Microfinance was originally closely associated with microcredit, small loans ranging from tens to hundreds of euros granted to small businesses and tradesmen with limited or no collateral who need to borrow amounts too small to interest traditional banks. The first to develop microcredit was Bangladeshi economist Muhammad Yunus. In 1976, the man long nicknamed “the banker of the poor” established Grameen Bank in Bangladesh, the first bank specialising in microcredit. His success in Bangladesh is such that similar initiatives sprung up more or less all over the world, and Yunus was awarded the Nobel Peace Prize in 2006. Through his bank, Muhammad Yunus demonstrated that not only do poor people repay their loans, but they can pay high interest and the lender can cover its own costs.
Over recent decades, microfinance has developed to now cover a range of financial products such as savings, insurance, payment methods and money transfers. New products and service delivery channels have also been set up to meet the highly diverse needs of low-income populations, such as group loans and group guarantees, preconditions for savings, and a gradual increase in loan amounts to assess their clients’ creditworthiness. Microfinance is primarily aimed at households living just below or just above the poverty threshold ($1.25 per day), and the majority of borrowers are women. It is mainly developing in southern hemisphere countries where it enables small tradesmen, traders or farmers to carry out micro-projects, but the idea is also gaining ground in Europe and the United States.