Microfinance Timeline:
A Historical Evolution Beyond Credit

Hari Srinivas
Continuing Research Series E-211. March 2025


Abstract:
Microfinance, often associated with small loans for the poor, has a long and evolving history beyond its modern institutional forms. This timeline traces its development from early informal savings groups and cooperative banking to the commercialization of microfinance and the rise of digital financial services.

Key milestones include the establishment of rural credit cooperatives, the Grameen Bank model, the global expansion of microfinance institutions, and recent innovations such as fintech and green microfinance. While microfinance has empowered millions, challenges related to regulation, over-indebtedness, and financial sustainability persist. As it continues to evolve, integrating technology, sustainability, and social impact will be essential to advancing inclusive financial services.

Keywords:
Microfinance, Financial inclusion, Cooperative banking, Grameen Bank, Digital finance, Sustainable development, Fintech, Poverty alleviation.
Introduction

Microfinance, often associated with small loans to the poor, has a much deeper history than commonly assumed. While the modern concept gained prominence in the late 20th century, informal credit systems and community-based savings groups have existed for centuries. The sector has evolved from cooperative banking and subsidized rural credit to a globally recognized tool for financial inclusion.

However, as microfinance has expanded, so have debates about its impact, commercialization, and limitations. The following timeline outlines the major developments in microfinance, highlighting its journey from informal lending traditions to digital financial services.

Timeline of Major Developments in Microfinance

Pre-20th Century

Early Forms of Microfinance

  • 15th-19th Century: Informal lending and savings groups emerge globally, including susus in West Africa, chit funds in India, and arisan in Indonesia.
  • 1720s: The Irish Loan Fund system, pioneered by Jonathan Swift, provides small loans to rural farmers and businesses.
  • 1849: Friedrich Wilhelm Raiffeisen establishes the first rural credit cooperative in Germany, laying the foundation for modern microfinance.
  • 1904: Cooperative banking spreads to India under the Indian Cooperative Societies Act, enabling local savings and credit institutions.

20th Century

Foundations of Modern Microfinance

  • 1950s-1960s: Governments and development agencies focus on agricultural credit programs, though many fail due to poor repayment structures.
  • 1961: The U.S. Peace Corps and other organizations introduce small-scale lending in developing countries.
  • 1970: ACCION International launches one of the first urban microcredit programs in Brazil.

1970s-1980s

Rise of Institutional Microfinance

  • 1972: The Self-Employed Womenfs Association (SEWA) is founded in India, focusing on financial services for women.
  • 1976: Muhammad Yunus starts the Grameen Bank project in Bangladesh, pioneering small group lending for the poor.
  • 1983: Grameen Bank is officially established as an independent bank, proving microfinance can be financially viable.
  • 1984: Banco Solidario (BancoSol) is founded in Bolivia, setting the stage for the commercialization of microfinance.
  • 1989: ACCION International develops the Solidarity Group Model in Latin America, an alternative to collateral-based lending.

1990s

Growth and Global Expansion

  • 1992: BancoSol in Bolivia becomes the first regulated commercial bank specializing in microfinance.
  • 1994: The Consultative Group to Assist the Poor (CGAP) is founded by the World Bank to promote best practices in microfinance.
  • 1995: The first large-scale microfinance investment vehicle (BlueOrchard Finance) is launched, allowing institutional investment in microfinance.
  • 1997: The first Microcredit Summit is held in Washington, D.C., setting a goal to reach 100 million of the worldfs poorest families.
  • 1999: The World Bank and IMF begin supporting microfinance as a tool for poverty alleviation.

2000s

Recognition and Commercialization

  • 2000: The UN Millennium Development Goals (MDGs) recognize microfinance as a key strategy for poverty reduction.
  • 2001: The first Microfinance Rating Agency (M-CRIL) is established to assess the performance of MFIs.
  • 2005: The UN declares the International Year of Microcredit to highlight its impact.
  • 2006: Muhammad Yunus and Grameen Bank win the Nobel Peace Prize for their role in microfinance and poverty alleviation.
  • 2007-2008: The global financial crisis raises concerns over commercialization and over-indebtedness in the microfinance sector.
  • 2009: SKS Microfinance, Indiafs largest MFI, becomes the first to go public, raising concerns about profit-driven models.

2010s

Regulation, Digital Transformation, and Social Impact

  • 2010: The Andhra Pradesh microfinance crisis highlights risks of aggressive lending and inadequate regulatory oversight.
  • 2011: The International Finance Corporation (IFC) and private sector players expand microfinance through mobile banking initiatives.
  • 2012: The Smart Campaign is launched to promote client protection principles in microfinance.
  • 2013: Digital microfinance grows rapidly with mobile banking platforms like M-Pesa in Kenya, expanding financial inclusion.
  • 2014: The European Microfinance Platform (e-MFP) strengthens impact measurement in the sector.
  • 2015: Microfinance is recognized as a key tool in achieving the UNfs Sustainable Development Goals (SDGs).

2020s

Fintech, Green Microfinance, and Inclusion

  • 2020: COVID-19 accelerates the shift to digital microfinance and mobile lending.
  • 2021: Blockchain and AI-driven credit scoring emerge as innovations in microfinance, improving accessibility.
  • 2022: Green microfinance expands, funding climate-resilient projects for small farmers and businesses.
  • 2023: Global investments in microfinance surpass $200 billion, reflecting increased institutional interest.
  • 2024-Present: Microfinance continues evolving, integrating with impact investing, digital lending, and financial literacy programs.

Conclusion

While often seen as a modern innovation, microfinance has deep historical roots. From traditional savings groups to cooperative banks and digital lending, its evolution reflects changing economic realities.

However, microfinance is not just about money?it is about empowerment, particularly for marginalized groups like women and rural communities. Access to finance can improve livelihoods, but it is not enough to drive broad economic development alone. Structural challenges such as education, healthcare, infrastructure, and governance must complement financial services to create lasting change.

Moving forward, microfinance must continue evolving beyond credit to holistic financial inclusion that integrates technology, sustainability, and social impact.

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