Kiva Instead

Instead, informal systems and relationships, including loans from neighbors or relatives, and rotating savings/ credit clubs, have filled this gap. While such solutions have worked for some and are often the only option available, they can be inconsistent and unreliable during times of tremendous need. In addition, poor entrepreneurs can become trapped in vicious cycles of borrowing from local moneylenders, who may demand exorbitant interest rates.Traditionally, banks were unwilling to provide loans to poor entrepreneurs due to the perceived risk. Common concerns included the fact that the unbanked were often illiterate, had no collateral, no prior credit history, and were not employed by anyone other than themselves. However, in 1976, Muhammad Yunus, seen by many s the visionary behind the microfinance movement, bucked conventional wisdom and loaned the equivalent of $27 of his own money to 1 This section is excerpted and modified from the Stanford 6SB case: Equity Bank (A), case no .E-260. Bethany Coates prepared this case under the supervision of Professor Garth Saloner as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 2008 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: [email  protected] stanford. du or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means † electronic, mechanical, photocopying, recording, or 0th the Stantord Graduate School of Business. Kiva E-288 erwise wit hout the permission ot some poor craftsmen in Jobra, Bangladesh.After all of the borrowers repaid, he repeated the experiment with more villages, and over the years, grew his series of xperiments into a multibillion dollar bank that has provided small loans to over 5 million people worldwide. Years later, Yunus noted, â€Å"At Grameen, we don't have any legal instrument between the lender and the borrower†¦. Everybody asks, What will happen if nobody pays back? I say, ‘But everybody pays back, so why should I worry about Grameen Bank charged 20 percent interest and reinvested all but 10 percent of earnings back into its operations.As Grameen grew, other leading microfinance institutions (MFIs), including ACCION International and Opportunity International, began to emerge and based their work on the same old ideas as Yunus: that the poor could reliably repay their loans, with interest, and could use the profits to grow their businesses. Mission-driven, nonprofit MFIs also entered the market. These organizations tended to pursue very rural or otherwise unreachable clients, even at great cost. They were ab le to provide financial services, including credit, tailored to the unique needs and limitations of the poor.