Muhammad Yunus and the Concept of Microfinance

By Phin Upham

Muhammad Yunus is credited with developing the incredibly innovative concepts of micro-finance and microcredit. Yunus developed a system for poor people to invest in each other through small loans, thereby lifting one another out of poverty.

Micro credit works by offering small loans to people in need who would not normally receive such loans. It has had a significant impact in developing entrepreneurial segments of populations in third world countries, but it has also improved the lot of women around the world. As of 2009, an estimated $38 billion was held in microcredit loans.

Yunus viewed charity as a method to shrug off the real problems. Charity helps us ignore the true dilemma of how to lift the world’s poor from their lot. With microcredit, charity would have a purpose. Microfinance developed out of an understanding of what drives poor people’s behavior. For example, microcredit was designed to help illiterate people who would not be able to fill out the forms needed for a conventional loan. These low-risk situations benefit the borrowers, and help universally uplift communities.

Yunus was an instrumental supporter of the 1971 Bangladeshi movement for independence from Pakistan. He ran an information center in the US, which became a huge advocate for independence. He returned to Bangladesh after the war where he became enamored with the problem of the country’s huge population of poor. He became at conflict with the economic theories that drove much of the life and world around him, and the reality of the poor in the capital.

About the Author: Phin Upham is an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media & Technology group. You may contact Phin on his Phin Upham website or Twitter page.