StudentShare solutions
Triangle menu

Microfinance Institutions - Essay Example

Not dowloaded yet

Extract of sample
Microfinance Institutions

Between the 1950s and the 70s, governments and donors used to channel funds to the poor communities for development through rural credit programmes, with most of these funds being subsidised. The results were high loan default rates and high loses that made it impossible to reach the targeted rural poor households (Anyanwu, 2004). In the early 1980s, the history of microfinance institutions gained shape as more of these institutions sprouted in developing countries. The Grameen Bank was among the first pioneers to offer small loans and savings services to clients on a large scale with considerable profit margins. These banks did not have any subsidies, they had highly sustainable businesses and were not commercially funded; they also had a wide outreach in such rural areas (Robinson, 2001). The difference between these institutions and the credit programs rolled by governments in the 50s and 60s was that the new institutions had more emphasis on repayment of credits, charged some interests to cater for the costs of credit delivery and had more attention on customers in the informal sectors (Jegede, kehinde & Ahmed, 2011). In the early 1990s, there was increased growth of MFIs in the number of developed institutions initiated and outreach to more customers. The 90s was the microfinance decade, with attention changing from provision of microcredit to the informal sectors to provision of more services such as savings and pensions that the poor demanded, and which led to the name microfinance institutions (Jegede, kehinde & Ahmed, 2011). Doubts on their effectiveness Though microfinance institutions were believed to benefit the poor, there are ranging debates on the effectiveness of such institutions, with major doubts on their effectiveness in eradicating poverty among rural communities. Hulme & Mosley (1996) in a study on the effectiveness of microfinance institutions observed that the poor households in most cases do not benefit from these institutions (those below the poverty line). The institutions usually benefit those way above the poverty line, defeating the purpose of microfinance institutions in poverty reduction. Most poor individuals according to this study but with significant starting incomes, when given such microcredits had much less growth in incomes obtained compared to the groups that did not receive the microcredits. In other words, the study indicated that credit is not the only factor to be considered in income generation, but other factors such as entrepreneurial skills have to be considered. Karnani (2007) further concurs that most people do not have the skills, visions, creativity and the persistence necessary in entrepreneurship. According to Karnani, in more developed countries, over 90% of people with incomes are in employed labour and not in entrepreneurship. This suggests that it is a simplistic assumption to offer credit facilities to the poor to start successful businesses. Moreover Pollin (2007) asserts that small business run by the poor cannot be successful by the mere fact that they have more opportunities to obtain such credit to initiate them. There are other factors that are pertinent and which are addressed in microcredit provision in poor areas. These include roads, affordable transport to move produce and market support to identify and target customers, which is mostly ignored in such efforts (Pollin, 2007). Daley-Harris (2007) on the same note remarked that microfinance cannot be the solution to global poverty levels, and neither can education, economic growth or proper educational facilities. In other words, it is not possible to use a single intervention to address poverty across the ...Show more

Summary

Microfinance institutions are relatively new developments in finance that emerged around the 1970s.Microfinance was an improvement of how donors and governments used to channel funds to the grassroots to help the poor in development projects…
Author : murphyvella
Microfinance Institutions essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Microfinance Institutions"
with a personal 20% discount.
Grab the best paper

Related Essays

Microfinance
(Microfinance and Micro Credit 1) Accordingly, microfinance is defined as ““banking the unbankables, bringing credit, savings and other essential financial services within the reach of millions of people who are too poor to be served
5 pages (1250 words) Essay
Microfinance: Banking for the poor
this operation because it generally deals with small amount of money and also to distinguish it from other formal services that are provided by banks and other financial institutions. The concept of microfinance formally came into being when Dr. Mohammad Yunus started to
4 pages (1000 words) Essay
Globalisation (Microfinance and Economic Development)
The term microfinance and microcredit have been the topic of discussion today among the development practitioners and academicians. The year 2005 was proclaimed as the year of
3 pages (750 words) Essay
ACCION International
As the author of the essay puts it, ACCION International has a mission of eradicating poverty. Reportedly, this organization provided financial services in the form of loans and business training to enable the poor individuals to sustain a decent lifestyle. Additionally, they have developed microfinance institutions that are able to achieve several financial factors.
1 pages (250 words) Essay
Microfinance
The idea of self-reliance and independence that micro finances may portray has increased trust in the microfinance institutions. The European Union benefits from the micro finances. Microfinance has enabled people to start the small business as it provides equity to entrepreneurs.
1 pages (250 words) Essay
Microfinance
Microfinance can be termed as a development tool that provides affordable and continuous access to finances for small businesses, reducing the gap between the active but financially challenged business society and financial services (Ledgerwood 3). It is a service provided by Microfinance Institutions, also known as MFIs.
1 pages (250 words) Essay
Microfinance
Microfinance is one of them. Its effectiveness is very doubtful thus needs special investigations held in order to determine if it really helps decrease the level of poverty in our society (Branch & Klaehn, 2002). Certainly, like
4 pages (1000 words) Essay
Microfinance - lending to the poor
Banks have always perceived small scale lending as a both costly and precarious activity; hence, they have focused their services on medium and large scale clients who can afford
7 pages (1750 words) Essay
Identify a question that you seek to answer. For example, Is microfinance effective or Should IMF lending be reformed or Does capital account liberalisation promote growth or Do the benefits of remittances outweigh the costs o
finance institutions offer small loans to low income clients to help them in establishing themselves and starting small businesses and unsalaried borrowers. The institutions use methods such as group lending, gradually increasing loan size, pre-loan saving requirement and a
4 pages (1000 words) Essay
Provide a critical assessment on the merit of the claim that microfinance has a poverty reduction and gender impact
Beside women representing the major part of poor people in this society, they are the most vulnerable when compared to their men counterparts.
12 pages (3000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation