Microfinance Issues - Essay Example

The major stakeholders are the poor who cannot obtain loans from commercial banks, the microfinance, the government, and stockholders. The poor’s concern is obtaining loans for use in financing their businesses. This group is at the core of the existence of microfinance. Microfinance is concerned with empowering the poor through the issuance of loans to improve the economic status of borrowers. The government gains significantly as its efforts to improve the living standards of its citizens are boosted through the efforts of microfinance. Lastly, for microfinance that goes public, stockholders are another major stakeholder and their concern is gaining dividends from their shares. No one stakeholder may be considered more important than the others.

Microfinance charges very high-interest rates but is paid over a very short pperiod The rates are multiple times higher than even those charged by contemporary commercial banks. Further, the rate of repayment is extremely high despite not being secured tangibly. This ensures that through the issuance of loans, microfinance can make huge profits which sustain them. To deal with life cycle issues, microfinance offers loans with different interest rates. For those who are extremely poor and unable to pay interest, they are given loans with no interest charged. This helps them to build business stamina, especially during hard economic times.

One governance mechanism that microfinance use is social security in loan issuance. Since members are poor and do not have a property to offer as security against loans to be acquired, collateral for borrowed money is assured intangibly communally. As such loans are acquired only through groups. Each member of a group is liable for a loan borrowed and this alone provides an impetus for members to persuade each other to pay their share of the loan without defaulting.