There are often traditional lenders in third world countries, but, like bankers anywhere, they tend to require collateral before making any loans. Muhammad Yunus, a Bangladeshi economist, had a better idea: believing that these poor, hard-working, honest folk were worthy of loans without credit, he initiated a program of small loans -- banking instead on trust and solidarity. He gambled and won. In fact, he just won the Nobel Prize for his initiative in the creation of the microloan idea, and you can read about him in his autobiography, Banker to the Poor.
As Prof. Yunus says, "It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be "not creditworthy". As a result it rejected the basic methodology of the conventional banking and created its own methodology."
At the urging of several funders, I undertook to create a microloan program for Ranquitte: The Story.
Our program takes a somewhat non-traditional approach among microloan programs (as exemplified by Yunus's Grameen Bank):
Our "funders" decided that they would prefer to go in the direction of no-interest, to provide the greatest possible benefit to the clients. Unfortunately, the cost of doing so means that the program is ultimately un-sustainable: administrative costs will ultimately suck the fund dry. Only infusions of cash from outside sources will result in continuation of the program. Alternatively, one could look at the program as one that will die a natural death, at roughly ten years down the road.
Grameen and Yunus seek to do "real" development: "Reaching the poor is its non-negotiable mission. Reaching sustainability is a directional goal. It must reach sustainability as soon as possible, so that it can expand its outreach without fund constraints." They realize that they should ultimately be able to take their hands off,