Abstract for: Breaking the Vicious Cycle of Poverty: Micro-Lending

Micro-lending has been introduced as an effective antipoverty tool in recent decades. However not all of micro-lending institutes are successful both in accomplishing their mission and in loan recovery. According to World Bank’s focus note (2006), less than a quarter of its projects that funded micro-lending were judged successful. This paper describes a specific type of micro-lending (Grameen way of micro-lending invented by Mohammad Yunus, Nobel Peace Prize winner 2006). Then it summarizes the differences of conventional bank and Grameen Bank. Also this paper illustrates the important loops that make the Grameen successful both in the loan recovery and in accomplishing its mission. The final contribution of this paper is to develop a system dynamics model to test some Grameen policies that researchers believe are the key elements of Grameen’s success. I find support for the fact that small loan size which is designed to match the client’s knowledge maximizes Grameen’s capital. Also the model finds that investing some portion of Grameen’s capital, giving loan to groups of people and choosing appropriate interest rate are crucial for Grameen Bank.