Microfinance is that a small loan lends from an institution to a poor person who might not have collateral, which aims to help them to escape from poverty (The Economist, 1998). However, whether this goal will be realized or not is controversial. This essay will attempt to argue that although the application of microfinance may have defects, it cannot be denied that it is a useful method to alleviate poverty. In order to demonstrate this, it will be shown that argument made against microfinance regarding firstly the high interest of it which leads to increasing suicide rate and secondly the high risk of microfinance may not be true. Meanwhile, several evidence will also be given to prove the advantages of microfinance.
One of the reasons why people hold a negative opinion on microfinance is that the interest rate which is 20%-30% is considered to be exorbitant (The Economist, 2000). Meanwhile, it is reported that 57 people committed suicide due to microfinance (The Economist, 2000). However, this was denied as microfinance institution (MFI) has not put any pressure to those people and there is no evidence that can prove the suicide is correlated to microlending (The Economist, 2000). Besides, The Economist (2000) states that the governments have pushed forward the policy to control the MFIs and restrain the interest rate so that the progress of microfinance is on the right track.
Another reason that people suspect whether microfinance can help to reduce poverty is the high risk of it. According to The Economist (1998), the main idea of microfinance is to offer the poor a small loan without their credit or pledge under which the MFIs may have the risk of not receiving the money back and going bankrupt. In addition, due to lackin...
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... each year’ in Bangladesh because of microfinance (The Economist, 2009). Even though there is no evidence which can verify that microfinance will absolutely reduce the poverty around the world, it is believed that there can be positive influence on poverty if more time is given.
To sum up, it seems clear that microfinance will decrease the poverty to a certain degree though there are still many improvements which should be made. For example, the interest rate of micro lending seems to be too high; however, this situation is under control because of the involvement of government. It is also true that this is risky for those MFIs involved, but the evidence shows the low default rate. Despite the fact that there is lack of direct proof of the effectiveness of microfinance, it is believed that microfinance can reduce the poverty as the evidence has been demonstrated.
Although poverty has minimized, it is still significant poverty which is characterized by a numerous amount of things. There are two types of poverty case and insular. “Case poverty is the farm family with the junk-filled yard and the dirty children playing in the bare dirt” (Galbraith 236)Case poverty is not irretraceable and usually caused if someone in the household experiences “ mental deficiency, bad health, inability to adapt to the discipline of industrial life, uncontrollable procreation, alcohol, some educational handicap unrelated to community shortcomings” (Galbraith 236).Case poverty is often blamed on the people for their shortcomings but on some levels can be to pinpoint one person's shortcomings that caused this poverty. Most modern poverty is insular and is caused by things people in this community cannot control. “The most important characteristic of insular poverty is forces, common to all members of the community, that restrain or prevent participation in economic life and increase rates of return.
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.
Those who struggle with poverty know that there are few opportunities for change and ways to get money. With a growing poverty threshold resulting in massive amounts of poor people living in inadequate living conditions, it makes it hard to obtain the essential life necessities. Many factors lead to this steadily growing tragedy. Many of those who live in poverty have few resources necessary for them to acquire money, resulting in the decision to get cash through payday loans, or quick cash. Despite the amount of money Payday Loan Companies lend to lower classes, they actually cause more harm to those who receive assistance than it actually helps them. ...
Poverty is such an important issue to address, not only for those suffering directly from it, but because high levels of poverty decrease GDP, damaging the economy, thus creating an endless, viscious cycle. “Not only is the reduction of poverty important for those affected, but it also has an impact on welfare spending,
Microfinance organizations are helping women in developing countries. Women in developing countries are receiving income based on their husbands job without
Microcredit group lending practices aim to solve both of these problems that prevent poor borrowers from receiving credit through traditional methods. Individuals in the recipient community form groups among themselves and receive a loan as a collective with the knowledge that every member of the group is liable for the debts of the other members. The fact that these groups are voluntary and among people who live in the same community greatly reduces the risk of unreliable individuals receiving loans.
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.
Although Yunus is an economist by profession and his microfinance project does sound as an economic move, nevertheless the scope of it is much wider than targeting finances alone. He has a long term vision to eliminate poverty around the world and provide a better quality of life for those who are less fortunate and deprived of some secure financial background. Since he feels like every person on this planet has an equal right to get a chance to improve her/his life, nevertheless her/his background, we could say that his vision goes far beyond providing the loans – he strives to
High school seniors takes deep breaths and parade onto the stage. The beginning of a new chapter awaits as they make the journey from one point of the stage to the end. They reflect on what they have been taught in those many years of high school. The most terrifying fact while graduating high school is the next step: making it on their own. Because they have taken part in the appropriate classes, the students are certain that they have gained the correct knowledge to begin making their mark on the world. In high school, it is crucial to achieve the appropriate classes in order to feel ready to take on the world ahead as an adult. However, many students lack proper education. One key example is financial literacy. Financial literacy is the
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.
“Poverty at Large: A Dark Spot in Humanity.” Causes of Poverty, 25 March 2014. Web. 26
1.Christen, Robert Peck; Rosenberg, Richard & Jayadeva, Veena “Financial institutions with a double-bottom line: implications for the future of microfinance” (July 2004)
There are two main ways to raise money for a project, growing business, or startup company: debt financing and equity financing. Debt financing includes long-term loans, while equity financing is the process of raising capital through the sale of shares in an enterprise. It is essentially the sale of an ownership interest to raise funds for business purposes.
At the end of the day, it is the women who are at the receiving end of the brunt of financial noninclusion in growing economies. Just 37% of women have formal account in contrast to 46% of men. Indeed, there is a palpable gender gap of 6 to 9 percentage across income clusters inside growing economies. Permitting easy and broad admission to financial services, without any price or non-price barriers to their use & presented in an accountable manner, have been shown to benefit the poor people and other various disadvantaged groups. The easy availability of capital will allow the poor people to recognize small business opportunities, with increase in flow on welfare effects, i.e., affecting the economy of the country.
A few sources of finance are short term and ought to be paid back within a year. Other sources of finance are long term and can be paid back over several years.