History
A short history of microfinance
Modern microfinance grew out of several experiments in Asia and Latin America in the 1970s. Over five decades it went from donor-funded credit projects to regulated banks, then to digital financial services.
Timeline
| Year | Milestone |
|---|---|
| 1972 | BRAC is founded in Bangladesh, and the Self-Employed Women's Association (SEWA) is registered in India. SEWA Bank follows in 1974. |
| 1973 | ACCION International backs its first microloans in Recife, Brazil. |
| 1976 | Muhammad Yunus starts lending experiments in Jobra village, Bangladesh, which lead to the Grameen Bank. |
| 1983 | The Grameen Bank is established as a formal bank by government ordinance. |
| 1984 | Bank Rakyat Indonesia restructures its village units (BRI Unit Desa) into a commercially sustainable microbanking system. |
| 1986 | PRODEM, a Bolivian NGO, starts lending to microentrepreneurs. |
| 1992 | BancoSol opens as a commercial bank spun out of PRODEM. It is the first private commercial bank in Bolivia dedicated to microfinance. |
| 1993 | The MicroFinance Network (MFN) is founded at a meeting hosted by BancoSol in Bolivia. |
| 1995 | CGAP (the Consultative Group to Assist the Poor) is created, with its secretariat housed at the World Bank. |
| 1997 | The first MicroBanking Bulletin is published, giving standardised, adjusted performance data on microfinance institutions. |
| 2005 | The United Nations marks the International Year of Microcredit. |
| 2006 | Muhammad Yunus and the Grameen Bank receive the Nobel Peace Prize. |
| 2007 | Compartamos Banco (Mexico) holds an IPO, which starts a debate about commercialisation. Safaricom launches M-Pesa in Kenya. |
| 2010 | A repayment crisis hits Andhra Pradesh, India, after rapid growth and multiple borrowing. The state government issues an ordinance restricting MFIs. |
| 2015 | Six randomised evaluations of microcredit are published together. They find modest average effects on income and consumption. |
From NGOs to banks
Most early programmes were run by non-governmental organisations funded by grants. By the late 1980s, some practitioners argued that donor money could never reach the number of people who wanted financial services. They proposed that lenders should cover their costs and fund themselves from deposits and capital markets. Bolivia's PRODEM and BancoSol became the best-known example of thistransformation from NGO to regulated institution. Others in Latin America, Africa and Asia followed the same path.
The MicroFinance Network
The MicroFinance Network (MFN) was founded in April 1993 by leading microfinance institutions meeting in Bolivia, hosted by BancoSol. A follow-up meeting in South Africa in 1994 set membership criteria. The network brought together institutions committed to scale and financial sustainability, many of which became regulated banks.
MFN put a strong emphasis on financial transparency. A 2004 CGAP review of microfinance networks noted that MFN members provided data to the MicroBanking Bulletin and allowed their adjusted financial results to be published. That information was hosted on this domain at the time. The network still operates today atmicrofinancenetwork.net. This site is independent and not affiliated with it.
Commercialisation and its critics
Profitable microfinance attracted commercial investors in the 2000s. The Compartamos IPO in 2007 showed that lending to poor households could be very profitable, and it prompted debate aboutinterest rates and mission drift. The 2010 Andhra Pradesh crisis showed the risks of fast growth without credit information sharing. In response, the sector builtclient protection standards and credit bureaus.
Evidence and the digital era
Randomised evaluations published in the 2010s found that microcredit expands business activity and gives households more choices, but the average effects on poverty are modest. Seewhat the evidence says. At the same time,mobile money showed that payments and savings could reach many more people than credit alone. The focus shifted from microcredit towards broader financial inclusion.