History Matters in Microfinance

In this paper, the author presents the argument that the history of microfinance (MF) dates back to the sixteenth century in Ireland. To support his point of view, he presents two examples:

• Loan Fund of Ireland: In Ireland, loan funds emerged in 1720s of initially interest-free loans from donated resources:
  • A boom was initiated by a special law in 1823, which turned the charities into financial intermediaries and led to the establishment of Loan Fund Board in 1836 for their regulation and supervision;
  • Commercial banks eventually used their clout to stop the growth of these funds by getting the government to put a cap on the interest in 1843;
  • The funds finally disappeared in 1950s.
• Communal fund in Germany: The community owned financial institutions started during the later part of the eighteenth century:
  • The first thrift society was established in Hamburg in 1778;
  • The first communal savings fund (Sparkasse) was started in 1801;
  • In 1989, both the rural and the urban networks of credit associations were brought under the law; the Cooperative Act of the German Reich increased the number of cooperatives to more than 15,000.

The author concludes:

• MF is not a poor solution for poor countries;
• Savings driven MF institutions in cooperative or community ownership are equally feasible in rural and urban areas;
• If properly regulated and supervised, MF institutions have great potential in poverty alleviation and development, both in rural and urban areas.