The Micromagic of Microcredit

Abstract

The United Nations declared 2005 the International Year of Microcredit. secretary-General Kofi Annan declared that providing microloans to help poor people launch small businesses recognizes that they are the solution, not the problem. Hundreds of millions of dollars are flowing into microfinance from international financial institutions, foundations, governments, and, most important, private investors-who increasingly see microfinance as a potentially profitable business venture. The modern story of microcredit began 30 years ago, when Yunus-then an economics professor at Chittagong University in southeastern Bangladesh-set out to apply his theories to improving the lives of the poor in the nearby village of Jobra, He began in 1976 by lending $27 to a group of 42 villagers, who used the money to develop informal businesses, such as making soap or weaving baskets to sell at the local market.