A bank for microloans

The social innovation that I find inspiring: The concept of “microcredit”, which was realised in 1983 with the founding of the Grameen Bank in Bangladesh, is a social innovation that I find particularly inspiring. Muhammad Yunus, the founder of the bank, popularised this innovation and has since gained worldwide recognition. In 2006, Yunus was honoured with the Nobel Peace Prize for his work. The founder’s principle is that people in poverty need loans, not handouts.

The problem that needed to be solved: In 1976, Muhammad Yunus meets a basket weaver near Chittagong (Bangladesh). She tells the Bangladeshi economist how she had to borrow money from a lender at extremely high interest rates of 10 % per week to buy bamboo. The profit from the sale of the wicker chairs was just enough to pay the interest. The problem is that many of the rural inhabitants, especially women, are unable to obtain credit from a local bank, for example because banks do not want to do business with people who cannot read or write. Besides, in conservative countries like Bangladesh, money transactions are the sole responsibility of the male gender, making it all the more difficult for women to get financial support for their self-employment.

Description of the innovative social solution: Grameen Bank translated village bank provides small, unsecured loans to the poorest people in rural areas of Bangladesh, mainly women. The microloan business model is designed to help small entrepreneurs who do not have access to traditional banking services to start or expand their own small businesses. Yunus sees a great advantage in focussing on financial support for women, as women tend to keep their money together and strive for a better life for their families.

Innovative factors:

• Target group: The microloans are aimed at a group that is disadvantaged by poverty or gender and is generally ignored by traditional banks.
• Financing: The loan structure is unusual in the traditional financial sector as the loans are unsecured.
• Group responsibility: The loans are often granted to groups. Each member vouches for the others, which leads to a high repayment rate.
• Self-help approach: Self-initiative and entrepreneurship among the poorest are encouraged.

What I find inspiring: I am excited about how this innovation is directly impacting the lives of many people by giving them the opportunity to improve their own financial situation. It has shown me that financial services can have a transformative impact on communities if they are properly designed and made accessible. The innovation focuses on women, who often do not have the same social status as men in third world countries. Therefore, in my opinion, the innovation is not just for functionality, but has a deeper meaning. It partly breaks with outdated norms and creates a movement that encourages women in particular to enter the business world in order to become financially independent.

The challenges: One challenge with microloans is sustainability. It must be ensured that the borrowers are able to run their businesses successfully and repay the loans without falling into a debt spiral. In addition, a balance must be struck between accessibility for the poorest and the financial stability of the credit institutions.