The idea of microfinance somewhat strictly rolls around the philosophy of Muhammad Yunus of Bangladesh (Nobel laureate) who initiated organization poorest of the poor into self-help groups namely Bangladesh Grameen Bank (BGB) in the year 1976, and make them realize the basic "theory of survival".
It began in 1976, with lending of $ 27 to 42 poor people in a village next to the university campus where he was teaching economics. He had no intention of making a wave he was planning to create a bank for the poor.
He had a modest goal. He was trying to free 42 people from the clutches of moneylenders by giving them the money, owed to the moneylenders, in order to repay them and become free from exploitation.
He was teaching in the Chittagone University, while a famine raged in Bangladesh in 1974. It was uncomfortable to teach elegant theories of economics when people were dying of hunger. He felt totally irrelevant.
He tried to make himself in some way relevant by going out to the poor people living in the village next the university campus. Initially he looked for any little thing that he could not do to make the life of a poor individual slightly tolerable.
One thing led to another. He kept seeing how people suffered because they could not find tinny amounts of money to carry on with their livelihood activities. To solve this problem, they went to moneylenders. Moneylenders turned them in to slave labour with an believable loan conditions. He wanted to see how many people there were in the village in this situation. He made a list. The list contained 42 names, the total amount they needed was $27. It was shock to the economic profession who taught his students about the national five-year plan and the rational for investing billions of dollars to overcome poverty. The professor did not know that people go through misery because they did not have access to a few pennies. Let alone a whole dollar. Even if the government invests those billions of dollars in big projects, this need of poor will still not be addressed.
He tried to address this problem by way of a emotional response; he gave the money from his pocket. He did not know that it would create emotional encounter response from the people who got the money. They thought it was nothing less than a miracle. He thought he could make so many people happy with a small amount of money, why not do more of the same. He decided to link the poor people in the village with the bank located in the campus, but the bank refused to get involved. They argued that the poor are not creditworthy. He pleaded with them to give him a chance to try. They refused. Ultimately when he offered to become the guarantor for these loans, they reluctantly agreed. He started giving loans to poor people in Jobra and was pleasantly surprised to see that it was working perfectly. He continued to expand the programme. Several stages later, they converted the project in to a formal bank, named Grameen Bank in 1983.
Gradually a new word, 'microcredit' was coined for these kinds of collateral-free tiny loans for income generating activities of the poor. The Grameen idea spread all over the world. Independent studies of micro-credit programmes show that providing easy and affordable access to credit and other financial services to poor families can have a host of positive impact on their livelihoods. A large number of impact studies done on the Grameen bank have shown a significant impact on the lives of its members across the wide range of economic and social indicators, including moving out of poverty, improved nutrition, better housing and sanitation, lower birth rate, lower child mortality, better access to education for the children, greater empowerment of women and increased participation of women in social and political activities.
However, the world wide awareness and importance of microfinance for the upliftment of the poor has been growing over the years as different countries are attempting to device ways and means to enhance the access of the poor to credit facilities. As a result, an intense debate has erupted among the planners, bankers and officials of the government and non-government organization as to how financial services can be provided to the poor in an effective, efficient and sustainable manner. Finally the attempt and the idea has been praised world wide and the interest reached a new peak with a micro-credit summit held in February 1997 in Washington which was considered the first step of a decade-long campaign that seeks to ensure delivery of credit for self- employment by 2005 to hundred million of the world's poorest families especially women of those families.
It was in such as environment that microfinance emerged as an innovation the world over. It was evolving into an effective system for provision of financial services to the poor households, more especially micro-enterprises. Internationally several variants of microfinance technology have evolved in the last two decades as also a wide range of institutions.