What the Nobel Means for Microcredit

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The microcredit movement, which started in the 1970s, has spread to every country in the developing world, but recent growth has catapulted it to the forefront of public consciousness. "The movement has hit its stride, especially in the last couple of years. [There are] a whole host of new players that are moving incredibly fast—it's not just an isolated thing in one or two places, especially relative to the lack of progress in other poverty eradication efforts," says Vikram Akula, founder and CEO of an India-based microfinance institution, SKS Microfinance, that adds about 30,000 borrowers a month and now serves about 350,000 total. "You cannot have world peace when there are 2 billion people living in abject poverty. The award to Yunus sends a message that economic development is a critical component of creating world peace," adds Akula.

But Yunus' approach to tackling poverty has been broader than just granting loans, and Grameen now has about 10 offshoots, in businesses ranging from solar power to cellular technology to health care. On Nov. 7, Grameen plans to launch a partnership with France's Groupe Danone (DA) to bring yogurt-making facilities to rural Bangladesh. Yunus calls these kind of partnerships "non-loss companies," since they're not being used to maximize profit but to provide sustainable solutions to some very tough problems in the developing world.

CORPORATE CONTRIBUTIONS.

As the movement goes mainstream, more and more corporate players are getting involved. In the past two years, Citigroup (C) has scaled up its microcredit support and services devoted to guaranteeing loans, supporting technology improvements, and spreading the word among other banks. "There is a real high-performance story around microfinance and groups like Grameen in social and financial input. Our role is to help communicate that to a wider group of financial institutions," says Bob Annibale, the global director of microfinance at Citigroup. And Deutsche Bank (DB) has developed an $80 million fund that invests pension and institutional investors' funds in microfinance, with a small rate of return.

AIG (AIG), the multinational insurance and financial company, recently invested $5.25 million in a three-year partnership with ACCION International, a global microfinance organization based in Boston, to develop and deliver innovative financial products like financial literacy and, eventually, insurance, remittances, and other products. "We've been following the industry for some time," says Ned Cloonan, AIG's vice-president for international and corporate affairs. "We were always looking for the right time to do more. We're calling the investment 'beyond credit' because we feel that the industry is ready for the introduction of additional products and services that go beyond straight lending, and we want to play a role in developing that capacity," says Cloonan.

The award will raise the profile of microcredit organizations working in the U.S. and abroad, as more and more capital is directed toward banking for the poor (see BusinessWeek.com, 9/20/2006, "$50M Microfinance Pledge Is Largest Ever"). "The whole industry is growing and the Nobel Prize gives it more of a global stature of acceptability, that there is something about microfinance that is fundamentally right," says Asad Mahmood, director for social investment funds at Deutsche Bank.

Jeffrey Gangemi is a freelance writer based in Mendoza, Argentina.