Muhammad Yunus, Father of Microfinance, Is Also the Grandfather of Crowdfunding
- February 9, 2014
- Posted by: Brandon Matheson
- Category: Entrepreneurship, Fund Raising, Internet Expert, News Articles
Source: NoozhawkOriginal Article here
Muhammad Yunus received the Nobel Peace Prize for providing credit to the destitute. Compelling evidence suggests that his philosophy of microfinance established the foundation for the $5 billion crowd-funding industry that some experts predict will reach $300 billion in just a few years. (Source: UC Berkeley College of Engineering)
Crowd funding sites like Indiegogo or Kickstarter allow startup businesses to pitch an idea to the public, with individuals donating anywhere from $1 to $1,000. The startups give out gifts or early product releases of their concepts to their widespread investors. This concept has enabled companies to open their investment pool from family and friends to the entire planet, and the $5.1 billion raised in 2013 proves that microloans go far beyond helping the poor become independent.
The interdependence and connectivity of microloans decentralizes the financial industry, allowing any individual to participate in the funding of a compelling product, service or movement. When access to money is limited by geography or immediate contacts, many businesses would simply never obtain the capital to get started. The next evolution of crowd funding is known as “equity crowd funding,” which provides micro-investments in exchange for equity in the business.
Imagine a community the size of Santa Barbara (a population of about 89,500) contributing a few dollars each to help a thriving pizza operation purchase a new wood-burning oven. The individuals who invest would actually own a percentage of that pizza business and reward the operators for their delicious pies with funding for new equipment or to open new locations. As the business makes money, the individual investors receive small dividend checks, or one day, when the business is sold, the individuals who invested get a cut of the sale. Not long ago, the only option a business owner or startup entrepreneur had to raise capital was conventional angel investment or traditional bank loans, both of which require a track record, board approvals and often lots of luck.
Yunus’ philosophy that “credit is a fundamental human right” dramatically reduced begging in Bangladesh, helped to increase startup businesses and, most important, established independence for the poorest — all because someone gave them a chance. That’s the true message and one that has international economic effects.
Yunus gave microloans of around $30 to destitute basket weavers in the 1970s, which led to the founding of the Grameen Bank. This institution provides small loans that make the difference between poverty and independence. Westerners may consider $30 an irrelevant amount of money when most of us easily spend $30 on coffee in a week. But for poverty-stricken artisans and craft makers in Bangladesh, $30 makes the difference between a life on the street begging or creating a simple business that provides for an entire family.
“I lend money to poor women,” Yunus said. “I give $30 loans, and when she holds this money, she shakes, she trembles, she cannot stand still … she will give her life to make sure that trust is kept.”
Grameen Bank boasts more than an 80 percent rate of return on initial loans — not bad for a bank that serves 5.6 million poor people living in 60,815 villages in Bangladesh.
Today, thanks to the Jumpstart Our Business Startups (JOBS) Act and “equity crowdfunding,” anyone can become an investor or owner. Access to capital has gone mainstream through the mainstream. Yunus created microloans to meet a heartfelt need to assist the poor. The concept that a small amount of money with a high frequency was born through Yunus’ work in Bangladesh. The evolution of these microloans into crowd funding and equity crowd funding platforms may provide the economic spark and fiscal balance the global community desperately needs.