Microfinance I

In the mid 1970s, about 80 percent of Bangladesh population was below the poverty line.

In 2010, that number is 38 percent.

I take those statistics from the Financial Times weekend edition, which had a story entitled "Cradle of Microfinance Rocked."

But let's back up a bit. In 2006, the Nobel Peace Prize gave its renowned award jointly to one man and one institution: Muhammad Yunus and the Grameen Bank. The former was the founder of the latter.

More recently, Yunus has received the pop-culture equivalent of the Nobel Prize: an appearance on The Simpsons. In the second episode of 2010-11 season of the Fox network's hit animated program, Lisa sees a video in which Yunus discusses microfinance, and Lisa is inspired to lend her $50 of disposable income to Nelson Muntz. Nelson plans to start a bicycle repair shop with it.

The only thing wrong with the Muntz example is that it is set in the U.S. The typical "microfinance" loan takes place in the developing world, and goes to a prospective entrepreneur in a village. Some have argued that village social constraits are crucial to its success. Microfinance works because institutions like Grameen don't have to use draconian collection means. In a village, everybody knows everybody, and peer pressure sees to it that the borrower makes good use of the money. Perhaps with a profitable bicycle repair shop.

So the idea of "microfinance," the idea that won that Nobel Prize is that institutions can make money by banking people that traditional banks would never touch.

Yunus does in fact have videos on the web through which he promotes the idea. This is one of them.

So ... what went wrong? What is "rocking" this promising system of development? I will hold off on that point until tomorrow.