History of microfinance

Microfinance – financial products and services including, among others, loans, savings schemes, money transfers and insurance for low-income populations – dates back to the 18th century in England and Germany. However, the movement experienced a boom in the 1970s in Bangladesh and Latin America. The year 2005 was declared the “International Year of Microcredit” by the United Nations, and in 2006 Muhammad Yunus, who founded the successful Grameen Bank, a pioneering institution in the microfinance sector in Bangladesh, received the Nobel Peace Prize.

The concept gained wide acceptance when it was seen that economically vulnerable populations could take advantage of opportunities to improve their lives through their own means and under their own responsibility. While the initial goal was to provide loans at a lower cost than the options traditionally available to these populations, the concept has evolved and today MFIs offer a wide range of financial products and services. Microfinance has gained the attention of the financial and development sectors, with a multitude of institutions serving the target group and specialized investors managing multi-million-dollar funds.

Nevertheless, the microfinance sector faces limitations. Different studies in recent years raise doubts about the positive socioeconomic impact that microfinance products and services can have on the lives of customers; many markets are struggling against the destructive trend of over-indebtedness of customers, and the total number of customers served has not reached satisfactory levels given the estimated demand of 2.5 billion people. In particular, the rural sector remains underserved due to the high operating costs and the fact that the risk involved is often unknown and difficult to assess or monitor with current methodologies.

Recent trends in the technification of the sector are mainly focused on the provision of money transfer services (such as MPesa in Kenya) and the use of information and communications technologies (ICTs).

In addition to technologically enhancing the processes of MFIs, the MEbA project also aims to contribute to their customers’ development by promoting better agricultural practices geared to the maintenance of ecosystem services.

For more information: