Over the past several years microlending has grown in popularity as a tool used throughout the world, particularly in developing countries, for creating employment and building businesses. In 2006, Muhammad Yunus and the Grameen Bank were awarded the Nobel Peace Prize for their microlending efforts in communities throughout Bangladesh.
Microlending provides small loans to individuals who are economically disadvantaged and lack the collateral or credit necessary to secure traditional financing. Microlending operates under the theory that individuals in developing countries have vital skills they can use to operate their own businesses if they have startup capital to launch. For example, an individual may be able to purchase livestock for farming. If the farming operation is successful, the individual not only repays the loan but adds to the local economy through the growth of the operation. Microlending has been particularly popular in developing nations because of the small amounts of the loans involved, sometimes as little as $20. Additionally, microlending has been seen as a way to empower women in developing countries by financing their small business ventures.
Although microlending has increased in popularity, there is disagreement as to whether the practice noticeably improves conditions in developing areas. Thus, the impact remains a point of contention among economists.
Philip H. Brown is a development economist whose studies include health, education, gender, equality, and poverty. He has worked in China, Central America, Africa, and Chile, and his work has been discussed in Time, The New York Times, and on National Public Radio.