The World Bank and British-based bank Standard Chartered said Thursday that they had teamed up to expand the microfinance, or tiny loans, to impoverished borrowers in Africa and Asia.
Standard Chartered, a commercial bank, is already dabbling in microfinance, but the new initiative with the Washington-based World Bank will enable it to boost its existing programs.
"This transaction will unlock more funding for microfinance. We believe improving access to finance is a key lever in reducing poverty and catalyzing broader social and economic development," said Standard Chartered chief executive Peter Sands.
Few people had heard of microcredit before a determined Bangladeshi economist called Muhammad Yunus won the 2006 Nobel Peace Prize, and put the growing industry in the spotlight as a potential poverty-busting tool.
Microcredit involves tiny loan that is granted to a poor person without collateral on the basis that they will use it to expand a small business, such as a food stall or clothes-mending enterprise.
Loan sizes vary, but the average loan issued by Grameen Bank, which was founded by Yunus in 1983, is 100 dollars.
Large global banks such as Standard Chartered have begun to show increased interest in the sector in recent years. Citigroup and ING have also set up microcredit programs.
Under the plan announced Thursday, the World Bank has agreed to invest 45 million dollars in a financing agreement with Standard Chartered which will help the bank extend additional credit to microfinance institutions in sub-Saharan Africa and South Asia.
Standard Chartered said it already supports 48 microfinance institutions working in 15 countries in Africa and Asia that impact the lives of 1.2 million people, most of whom are women.
Yunus believes microloans can help destitute people, commonly defined as those living on under one dollar a day, to break the poverty barrier.
Grameen, which means village, targets most of its loans at women as it believes they are most responsible for running a family's finances.
Yunus has conceded, however, that the loans are not a magic bullet, and should be coupled with better education and healthcare programs.
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