Essay on Challenges for Microfinance Organizations Serving the Poor

Essay on Challenges for Microfinance Organizations Serving the Poor

Length: 1515 words (4.3 double-spaced pages)

Rating: Powerful Essays

Open Document

Essay Preview

WHAT CHALLENGES DO MICROFINANCE ORGANISATIONS FACE IN THEIR ATTEMPTS TO SERVE THE POOR? ASSESS THE POTENTIAL BENEFITS AND DRAWBACKS OF MICROFINANCE IN IMPROVING LIVING STANDARDS.

Over the last 15 years microfinance institutions (MFIs) have rapidly expanded. The number of poor families with a microloan has grown from 7.6 million in 1997 to 137.5 million in 2010. Microcredit has generated significant confidence for fast poverty alleviation; creating a multiplier effect leading to the eradication of poverty and hunger, universal primary education, the promotion of gender equality and empowerment of women in developing nations. It can be argued that microcredit is a “win-win” opportunity, in which the poor are given the financial capital and means to pull themselves out of poverty trap (Duflo, E et al, 2013). However this essay will be analyzing the potential drawbacks as well as benefits MFIs face by providing loans to the poor. In recent years Microfinance has been subjected to heavy criticisms from economists arguing that MFIs are having a negative impact in developing countries. Questioning whether microfinance will be able to reduce worldwide poverty and raise the living standards of the poor?

Microfinance is the supply of small-value loans (often against below market interest rates), savings and other basic financial services to the poor in developing countries, who would otherwise have no alternative means of gaining financial assistance. The aim of microfinance is to allow people living in poverty access to financial capital to run their businesses, build assets and manage risks (CGAP, 2014). It has been estimated that 2.5 billion people, have neither a bank account nor access to semi-formal financial services such as “micro...


... middle of paper ...


...t of poverty trap. MFIs were faced with many challenges, the fundamental challenge being the adverse selection and moral hazard problems, although these were solved with group lending. The microfinance model was highly flawed as demonstrated with its many critiques ranging from high interest rates to multiple lending by MFIs to the borrowers. However MFIs are under modification, with legalisation and sanctions being drawn up to prevent the exploitation of the poor from occurring in the future. Microfinance is still successful as it is a means of expanding credit access to those who are deemed un-creditworthy by formal institutions and who would otherwise be forced to rely on exploitative informal institutions like moneylenders and pawnbrokers. The establishment of MFIs in developing countries is a step in the movement towards universal financial access for the poor.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Organizational And Leadership Challenges Of Organizations Essay

- Throughout this course my paradigms of what a nonprofit organization have been challenged as we have considered the major aspects and leadership challenges of these organizations. Having worked with for profit and nonprofit organizations in the past I was quite confident that I had a clear understanding of the distinctions between the two. I had worked in organizations that regularly used volunteers to accomplish their mission and felt that the management of these processes were simplistic. Despite these misconceptions, I found that I was able to learn a tremendous amount through our reading, peer interactions, group projects and equally important, my volunteer service as part of this cour...   [tags: Non-profit organization, Fundraising]

Powerful Essays
771 words (2.2 pages)

Essay on Challenges Faced by Organizations Going International

- Contents INTRODUCTION 1 BRIEF OVERVIEW 3 CHALLENGES FACED BY ORGANIZATIONS GOING INTERNATIONAL 4 ORGANIZATION CULTURE AND ITS IMPLICATIONS 7 REFERENCES 8 INTRODUCTION With places people also differ and hence the culture. In Japan people are very polite while in Australia they are blunt. Even if one consider Red colour, it means stop or danger in United Kingdom, good fortune in China and symbol of death in Turkey. This shows vast difference in culture and thinking of people in different countries....   [tags: Organization Culture, Implications]

Powerful Essays
1237 words (3.5 pages)

Essay on The Challenges Faced By Public Organizations

- The challenges faced by public organizations in relations to diversity in the workplace is a complex and continual process for diversity programs, equal employment opportunities, and multiculturalism. Diversity programs seek to promote culture differences within the workplace to ensure all people such as minorities, women, and the disabled. However, equal employment opportunities are focused on undertaking discriminatory or prejudiced dilemmas inside an organization. Likewise, multiculturalism is defined as being opened to new cultures, beliefs, practices, and innovative ideas that are unlike your own culture....   [tags: Black people, Discrimination, African American]

Powerful Essays
1116 words (3.2 pages)

Professional Organizations : Professional Organisations Essay

- Professional Organisations Having an understanding of professional organisations can help a manager effectively manage dire situations or reactions from staff. As Shell (2003) explained professionals are a different group of people, they are experts in their own field giving them expert power and therefore must be managed differently. Professionals are highly autonomous therefore they expect a high degree of control and the freedom to exercise their independent professional judgements. They act to serve their own primary interest, and not necessary the organisation’s....   [tags: Management, Organization, Organizational studies]

Powerful Essays
880 words (2.5 pages)

A Proposal for Sustainable Development through Microfinance Essay examples

- A Proposal for Sustainable Development through Microfinance The following proposal synthesizes from the history of the microfinance industry, particularly its successes and failures, a model for developing a sustainable microfinance initiative. Central to this synthesis is the analysis of the strengths and weaknesses, challenges and opportunities, and characteristics of three well-managed microfinance institutions (“MFIs”): Grameen Bank (“Grameen”), Compartamos, and Friendship Bridge (“Friendship”)....   [tags: success, failure, framework, leverage]

Powerful Essays
2039 words (5.8 pages)

Global Health Care Challenges Essay

- When analyzing the global health care crisis, one should pay particular attention of the problem from both the macro and micro scale. Overlooking either side of the issue wastes both valuable time and resources during an era that cannot afford such loss. Some argue that health care is a fight that politicians must win to enact change. Others say the crisis is simply another economic matter that will eventually resolve itself under the theories of supply and demand. When we look at these explanations without seriously considering the issues that arise in the microcosm, we expose ourselves to moral hazard....   [tags: World Health Organization, Poor Health]

Powerful Essays
2456 words (7 pages)

Microfinance Institutions Performance in Pakistan Essay

- Introduction Poverty is the main problem of everywhere. For the last thee decades several developing and developed countries taken several steps to alleviate the poverty. In the world %??(how much %) people are living life below the poverty line their daily or monthly income is less than $ xxx(how much) . One main step is the establishment of Microfinance Institutions which are providing micro credits to the poor people without any collateral. The performance of these institutions is very attractive even some commercial banks also started micro financing on commercial basis....   [tags: Economics ]

Powerful Essays
2290 words (6.5 pages)

Essay about Overview of Housing Microfinance

- Housing Microfinance “Inadequate sanitation and housing threaten the lives and health of some 600 million urban dwellers world-wide.” – CGAP (Bonnie Brusky) This research paper will concentrate on the innovation of housing microfinance. Housing microfinance is helping to give loans to individuals that are suffering from poor infrastructure. This type of microfinance will aid in increasing the level of living standards. This paper will analyze the current organizations that deal with housing microfinance and it will implement new ways that it can be implemented....   [tags: Homeowner Finance, Consumer Lending]

Powerful Essays
1912 words (5.5 pages)

Using eBay for Microfinance Essay

- By now most everyone has heard of or used eBay. In its short 15-year history, eBay has become one of the most widely used mediums for online buyers and sellers to trade in a peer to peer format, a format that has been wildly successful. From individuals selling junk they found in their attic to start-up storefronts within eBay, one’s buying options are endless and are diversified into hundreds of categories and sub-categories. As most who have ever used eBay to buy or sell anything know, there is usually the always-certain checkout through Paypal (which eBay acquired in 2002)....   [tags: internet, finance, loans, kiva]

Powerful Essays
925 words (2.6 pages)

Microfinance System and Poverty Essay

- ... He wanted to prove that it was possible to lend to the poor people without “collateral” (Todero and Smith, P764). He saw many benefits for the poor if his idea ever became successful. Many poor people can benefit from this new sort of banking. Its primary target was people who had no chance in their lives to receive credit from the bank to start anything in life. For example with this new program, urban peddler can borrow money from Grameen bank, start a small business, and potentially can become a vendor (Todero and Smith, P764)....   [tags: developing countries, micro credit programs]

Powerful Essays
2031 words (5.8 pages)