Small is beautiful - Nabeela Ahmed

The growth of microfinance has been hailed as a revolutionary breakthrough in development economics; a truly self-sustaining and continual method of allowing impoverished communities to survive. Bill and Hilary Clinton have shown their support, and the recent Nobel Peace Prize triumph of Professor Muhammad Yunus, founder of the Grameen bank has catapulted world awareness of microfinance as a force in poverty alleviation.

Dr Yunus

The effects of the devastating Bangladesh famine of 1974 inspired economist, Dr. Yunus to set up the first microfinance scheme. He made a small loan to a group of 42 rural families so that they could create small items for sale to generate income. This would also allow the communities to protect themselves from the cyclical problem of exploitative moneylenders which trapped rural communities into impoverishment.

The bank which grew out of this initial step was named Grameen, literally translating to 'villages'. The bank began as a research project by Yunus and the Rural Economics Project at Bangladesh's University of Chittagong to test his method for providing credit and banking services to the rural poor. With government support, Grameen grew to be successful and widespread across Bangladesh. In 1983 it was transformed into an independent bank by the legislature of Bangladesh.

Grameen loans are typically used to buy tools and equipment to set up an individual form of business. As the microfinance movement has grown, the Grameen Bank has extended into foundations dedicated to fisheries and irrigation.

Today it has 6.6 million borrowers and in 2006 the number of branches stood at 2,100.

Women at the Barli Institute in Indore learn to use microfinance to set up their own businesses

The success has triggered similar poverty alleviation schemes throughout the world, with India holding the largest and fastest-growing microfinance sector, growing at a rate of 300% according to The Best Practices Foundation (TBF), a research NGO based in Bangalore. The Nobel Committee has stated that Professor Yunus's Grameen Bank helps the poor "to bring about their own development".

The attention to microfinance in India has been highlighted with the Department for International Development (DfID) supported initiative on microfinance called Credit And Savings for Household Enterprise (CASHE). The seven year project with a budget of almost £10 million operated in four states and ultimately reached almost 600,000 people. TBF has been involved in the evaluation of this project.

However, despite the celebrated effects of promoting entrepreneurialism amongst the rural poor, there have been criticisms. In India, several large banks such as the ICICI are seeing the benefits and moving into the microfinance sector, bringing with them a completely different set of business-orientated ideals in a domain traditionally led by long-established non-profit organisations, who have been interacting with local communities for decades to identify and resolve their needs.

According to TBF research; banks have seen that they are tapping into a huge need - only 10% of India's poor have access to financial services - and are expanding the sector at a phenomenal rate. However, they do not have the advantage of direct integration with the poor that they intend to aid. There is now a danger that the business-minded approach that is required for 'professional service delivery' in large-scale microfinance schemes may distract NGOs from their original missions.

The banks' approach to microfinance is through a vacuum; the other factors that are contiguous to community regeneration, such as rights awareness, education, health inputs and gender equality, which NGOs have traditionally campaigned for, are in danger of being put aside as inefficiencies in a commercialised process.

Large nationwide banks entering the microfinance sector may be welcomed by many as the very boost that a scheme proven to be so effective needs, but whether they have the same interests and level of commitments to the needs of poor will match up to, or work alongside those of poverty-alleviation NGOs remains to be seen.