Microfinance Institutions - Essay Example

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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. ...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…
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