“[Micro financing] is the backbone of our economy.” Micro financing helps stimulate small businesses and helps support the economy, including larger corporations. In order to explore this topic further, we interviewed Michael Stewart, who is a financial advisor of twenty-three years, a Certified Financial Planner (CFP), an Accredited Asset Management Specialist (AAMS), and has his Bachelors of Science and Business Management and degrees in Financing. The information gained in the interview helps explain the specific importance of micro financing and what impact it has on the American economy.
According to Stewart, micro financing is the ability of a small business to get loans for which they might not qualify. In order to get loans, they have to seek alternative methods, such as small business loans through a small business development center or through government entities. These loans will usually range from $1,000-$30,000. On average, these loans are around $24,000-$25,000. The primary use of micro financing is as a kick-start for new companies that need a little bit of a boost to get off the ground. The idea is that these companies will after time grow enough that they will no longer need to use microfinancing and they can apply for more traditional loans. Because of this, most economies do not implement microfinancing as a source of potential bailout for those companies who are not doing so well.
The role it plays in the economy is enormous. When one looks at the economy, they will see many large publicly traded companies. The small businesses receiving these microfinancing loans strongly outnumber the corporations (Stewart). In terms of production, although a large company will produce more than say, a small busin...
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...to the idea both give insight into the effectiveness and sustainability of this practice. He provides a bright outlook for the future of these types of practices when he says that micro financing is “becoming more and more of an accepted way of financing” as opposed to being seen as what he calls a “last resort”. The increasing popularity of microfinance is good for the entire economy but especially those small businesses that Stewart stresses as crucial components of our economy.
Works Cited
"Unbanked in America." Microfinance Gateway. 28 Sept. 2011. CGAP 2013. 19 Nov. 2013 .
“Examining the roles and future of microfinance” The Guardian. 11 Dec. 2012. Web. 21 Nov. 2013
Yunus is a trailblazer of the micro-lending or microcredit concept. He argues that credit is a human right that e...
The problems that Microcredit programs attempt to solve are the problems of moral hazard, asymmetric information, and adverse selection.
Women in developing countries are not empowered by micro-loans because it can exert women further into debt. Not all women are smart and educated enough to be able to profit from these micro-loans and instead they can be quite dumb and irresponsible with the exerting them further into debt. This does not apply to all the women who receive micro-loans, but a decent portion of them it does. Although, micro-loans could be the key success to a family's triumph out of poverty, they can still propel people into a rough and tough situation. Also, if a women’s micro-loan does not work out they will be put to shame by their whole entire community.
Although small businesses do not make a lot of major deals with large investors, most small businesses create profit revenue greater than large corporations. Small business creators are very brave considering only ten percent of small businesses survive. Unfortunately, some communities do not support local small businesses; they only support the large brand name and force small businesses to die out. Since small businesses will not have a name brand known around the world, many people from communities will not support them because they are not known on a national scale. “This, in turn will affect the local economy and drive capital out of their local economy. On average, for every one hundred dollars spent in an economy, if spent on a
As found by Hartangi (2007) that success of Micro finance depends upon the practices of that specific bank, which finance poor people, by quoting and example of BRI (Bank Rakyat, Indonesia) researcher says that they provide technical and moral support to the people they lend money, and make sure they do good, they also choose different collaterals like motorcycle, cars, cattle, and land etc to secure their loan yet making collateral stronger incase the client fails to repay and credits interesting for lower class community. Beside this, Risk management, internal audit, financial procedures, transparent system, dedicated staff, and clear incentives to staff and clients are the factors which contribute toward the successful lending of micro finances. Obamuyi (2009) says that poor credit culture and low risk management can result in low rate of return, which finally ends with the failure of the scheme. The risk of low rate of return can also be minimized by the assistance provided by the MFIs to develop the small business of clients (Zelealem, Temtime, & Shunda, 2003).
Access to equity and formal debt financing has repeatedly been identified as a recurring constraint to SME growth and development. Commercial banks apply conservative policies in lending to SME. More, importantly the existing structure of financial sector was developed to serve medium to large enterprises which are organized as a formal business (Kon and Storey, 2003). Most banks prefer to hold risk free-income generating assets and lending to SME is unattractive due to a range of objective and subjective factors. These include high transaction costs, inability to do away with tangible collateral requirement, no linkage of financial products with sector needs and the inability to structure/ offer and manage risk-prone SME specific medium to long term financing options.
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.
The reasons of the unexplored features of Microfinance especially in Pakistan is the limited number of academic studies, lack of comprehensive datasets and governess techniques (Hartarska, 2005). To explore this field we must investigate this field with maximum data more variables and several governess aspects and characteristics.
They lack capability for planning and budgeting their operations. Most surveys, reported that many SMEs lack access to finance. But when analyzing their situation, it was found that SMEs lack knowledge on costing and pricing. This saw a need to first build up strong financial literacy and business planning. With such capacity, it then becomes feasible for SMEs to access bank loans.
Microfinance has been of a great interest in the recent past, particularly in the context of reaching the poorest families in a more effective way. The word microfinance is being used very often in development vocabulary today. Although the word is literally comprised of two words: micro and finance which literally mean small credit; the concept of microfinance goes beyond the provision of small credit to the poor. Christen (1997) defines microfinance as 'the means of providing a variety of financial services to the poor based on market-driven and commercial approaches'(Christen R.P., 1997). This definition encompasses provision of other financial services like savings, money transfers, payments, remittances, and insurance,
The history of the microfinance industry provides a framework for understanding why certain MFIs are successful and others are not.
Small businesses are the cornerstone of the American economy, having comprised 46% of the country’s private nonfarm GDP in 2008 (Kobe, 2). We underestimate the importance of even the smallest of businesses, from the local grocery stores we buy our milk and eggs at, to the mom and pop shops that litter the avenues and boulevards of our small towns, catering to the communities that support them. Small businesses are all around us, they encapsulate our everyday lives. We all have personal experiences with them; perhaps we are related to the owner, worked at one, or just frequent a specific one often enough to be considered a regular. But I like to consider myself to have a relationship with small business that the average person doesn’t have:
1.Christen, Robert Peck; Rosenberg, Richard & Jayadeva, Veena “Financial institutions with a double-bottom line: implications for the future of microfinance” (July 2004)
Overall, microcredit has helped millions of people around the world and it continues to have a great impact on poor people, informing them that all they need is a little ‘push’ or start-up money to begin creating a better life and subsequently a better community. Each organization has its own goals and purposes depending on the country where they reside as well as different challenges that have appeared. Microcredit is helping poor people and small business owners to better themselves as well as to their families and have their time, skills, and ideas utilized in an effective and positive way.
An important term that is cropping up everywhere nowadays is “Microfinance”. It is important for every person interested in the field of finance to be aware of this term, as in the coming days Microfinance is expected to be one of the brightest and the most appealing sector of the Indian Economy.