A Microfinance Path for Commercial Banks
A Microfinance Path for Commercial Banks
By Mohamad Nazirwan*)
In the recent years we have witnessed the flourishing of microfinance around the globe – particularly after the United Nation launched the International Year of Microcredit 2005. Perhaps, the greatest indication of this growing trend was when Professor Muhammad Yunus, the founder of Grameen Bank and the pioneer of microcredit for women was awarded a Nobel Prize. In many perspectives, microfinance has been proven an effective tool to support the Millennium Development Goals campaign in reducing the half number of poor people.
Microfinance has come a long way from its beginnings as a non-profit program to combat chronic poverty in developing countries. The best practice in the past was that the government created state owned banks to channel subsidized loans to farmers to produce food crops and many international NGOs gave charity to poor inhabitants in order to help them climb up from chronic poverty trap. Furthermore, microfinance gradually evolves from social intermediation to financial intermediation which adopts market mechanism and commercial practices. Surprisingly, this approach has worked well in the bottom of the pyramid (BOP) economy mainstream and it has generated good impact on the prosperity of low income households and the poor.
The presence of microfinance institutions in local community has successfully opened financial access to microentrepreneurs and under banked clients who need loans for working capital and investment. The spectrum of commercial microfinance also broadens through providing saving products, remittance and payment system to the entire society efficiently and profitably. A key feature of this approach is double bottom lines that are to seek profits and also to create social values. One of the best examples and also the pioneer of commercial microfinance is BRI-Unit microbanking system which developed over two decades ago, after BRI struggled with massive losses during the rice self sufficient program (Bimas).
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