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effect of microfinance in economic development
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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”). These analyses highlight the strategic leverage points – business strategies, organizational structures, financial reporting transparency, performance measurements, and organizational objectives – that determine the success of microfinance initiatives. These strategic leverage points, in turn, shape the framework for developing a prudent microfinance initiative. Microfinance evolved from Muhammad Yunus’s poverty alleviation strategy of microcredit – providing small non-collateral short-term loans to the poor. In short, Yunus founded the microfinance institution Grameen Bank after a successful experiment of providing loans to poor women in Bangladesh revealed the poor are capable of repaying debt obligations at a high rate and can benefit from access to credit. The high repayment rate, approximately 98% according to Yunus, meant that a commercial bank could become financially sustainable while providing loans to the poor as a method of poverty alleviation. Furthermore, access to credit provide the poor with the capability to ascent from poverty. Grameen’s rapid success lead to the popularization of microfinance’s ability to alleviate poverty and, consequently, provides valuable insights in effective microfinance business strategies,... ... middle of paper ... ...that future competition would force Compartamos to reduce rates eventually if it was egregious. Compartamos leveraged its organizational structure to accomplish its goal of growth and financial sustainability. Compartamos’s emphasis on profitability and bank-chartered organizational structure produced high quality reporting, rapid growth, and, through its IPO, provided proof that microfinance could provide meaningful returns to investors while helping the poor. However, Compartamos’s financial success is argued to exploit the poor through high interest rates and mission drift of microfinance. These strengths and weaknesses highlight the limitations on pursuing financial performance over social impact in the industry of microfinance. The history of the microfinance industry provides a framework for understanding why certain MFIs are successful and others are not.
How has MCI raised external funds in the past? How sensible have these decision been?
Microcredit, as described by Isserles, is a development “scam” which destroys the lives of Third World peoples. To her, these small loans falsely identify women, and others, as being worthy of credit, but the agreement’s terms subjugate them to continued financial dependency on microcredit loans. The First world hails this program as a success because aid is just a handout while microloans are a way of creating self-reliance through the market. Isserles states that the market becomes the solution to the “temporary” state of poverty, and this idea is due to a disconnect between the First World and the Third World. Projects claim to support women through finance, yet they refuse to alter the labor and domestic conditions of women across the world.
Microfinance organizations are helping women in developing countries. Women in developing countries are receiving income based on their husbands job without
That being said, there are plenty of alternatives to microfinance, many of which I would be glad to endorse as effective means of
Adelman, P. J., & Marks, A. M. (2010). Entrepreneurial finance. (5 ed.). Bedford, Texas: Prentice Hall.
Women all over the world suffer from poverty and unfair treatment. Almost half of these women in poverty come from Africa, being paid barely a dollar a day. These women can barely feed themselves let alone their family. In order to feed and take care of their family they need micro-loans to either start a business and continue their business. Women are not empowered by micro-loans because of gender-based division of labor, their husbands and men in their family, and the women being shamed for not being able to repay the loan and be in debt.
According to Jones and Tilley (2003), poor financial management is a serious hurdle when starting a business. Lack of funds and investment capital are the major challenges that have accounted for the high rates of failure among SMEs.
Micro-loaning is designed to break the cycle of poverty by allowing low income residents access to outside funds, which they were previously restricted from. These funds give the opportunity to participate in investments, such as small businesses, and create a steady flow of income. Micro-loaning provides financial services for those who might have low or no income, as well as not having the official documents required when applying for a regular loan. With the goal of low interest and easy application, micro-loaning appears to the most efficient, alternative way of alleviating poverty. To help gain a better understanding of micro-loaning; we will explore the micro-finance history and its organization, poverty and the target subject of this organization, and the benefits and backfires of providing these services.
The lifestyle of people across the world is developing rapidly. As there is a growing concern for people about the lifestyle and way of living, the scope for the microfinance industry is also at a growing pace. A large number of people across the world prefer finance for the purpose of purchase of consumer durables as well as lifestyle products. As the credit card EMI options are more expensive, people prefer NBFCs for the purpose of consumer durable loans. The project done in bajaj finserv explains the role of NBFCs in the consumer durable loans and the procedure undertaken in order to disburse the consumer durable loans.
In the book “Creating a World without Poverty” of Muhammad Yunus, he expresses and addresses an issue concerning on how to solve a problem about the poverty in the society. Muhammad Yunus focuses primarily on the different aspects concerning about human nature, problems with private enterprise, society's perspective concerning poor people, definition of Microfinancing, definition of Social Business, challenges confronted while opening the Grameen Bank, and lastly, the success of the Grameen Organizations.
Since its emergence, microcredit has been viewed as a very important tool for development. Many around the world believe microcredit is the antidote for global poverty. Although the Grameen Bank focuses only on people from Bangladesh, different microfinance institutions had been established around the world. Accion International is one example of these institutions in Latin America, which started providing loans in 1973 (The history of microfinance, 2005). These financial institutions started to grow rapidly due to high demands of small loans. Poor people around the world started to lose faith to their countries’ authorities to provide for their well being and started to tur...
According to Hans Dieter Siebel, 1983 in Sudan he found the main problem of small entrepreneur which is the lack of access in credit. The bank offered two main products which are murabahah and mudarabah....
Operating self-sufficiency is a percentage (%), which indicates whether or not enough revenue has been earned to cover the Microfinance Institution's (MFI's) total costs – operational expenses, loan loss provisions and financial
A microfinance institution (MFI) is an organization that provides microfinance services, ranging from small non-profit organizations to large commercial banks. “An MFI can be broadly defined as any organization such as credit union, down-scaled commercial bank, financial NGO, or credit cooperative, etc. that provides financial services for the poor."
The Grameen Bank started in 1976 by Muhammad Yunus in Bangladesh, created the microcredit system to alleviate the poor and help to increase the living standards for the various families and communities in Bangladesh. This has been a successful project to help communities better their life. Grameen Bank has modified their bank system to work with the borrowers that come from poor backgrounds. Grameen Bank had to modify the bank system and loan repayment system to justify how well the people could return the loan their borrowed. They have managed to have a balancing profit and impact bottom line, but they concentrate mainly on achieving an impact on the communities they are working with. They have proven to have a huge development impact (Schicks, 2007).