Microfinance Essay Examples

Micro-loans are essentially the same as traditional loans, just on a much smaller scale. Families living in extreme poverty usually don’t have good enough credit to obtain a traditional

The concept of microfinance is not something new. In fact, the history of the microfinance goes back as early as the 15th century. It was in Europe where the concept of pawn shops – an institution by the Catholic Church against the people who were charging exorbitant

Muhammad Yunus, Founder of the Grameen Bank is often hailed as the architect of microfinance lending and has been praised around the world for his work and even awarded the Nobel Peace prize in 2006. The concept of microfinance is to lend small portions of money to poor people who could not have otherwise acquired a loan from a regular bank. Microfinance banks give the poor a small loan with incredibly high interest rates in the hope that the borrower will create a business or some form of income creating venture to sustain themselves and pay back their loans. Not only is that person left with a way to support themselves, but it also creates jobs in the community. These banks have noticed that when the money was lent to a family through the woman of the household, it went a longer way than if the man of the household received the loan. Yunus has noticed even within the Grameen Bank that “Poor women [have] an amazing skill, the skill of managing a scarce resource.” (12) Studies have shown that if a mother is receiving income the first beneficiaries are her children. The effects of this are amazing, many communities have seen a rise in school enrollment and improved child survival rates because women are more likely to spend money on food for their children and health care than are fathers. There is a saying, “If you give a man a fish, he will eat

What is microlending? In simplest terms microlending is the lending of very small amounts of money at low interest, to low income people in urban and rural areas. It started forty years ago, when a person named Muhammad Yunus was visiting his family and his country Bangladesh which had recently become an independent country. Muhammad Yunus had left his home country then –East Bengal- when he was a child with his parents in search of a better future. He graduated from Vanderbilt University in Nashville, Tennessee, with a PhD in economics. Muhammad Yunus is the founder of Grameen Bank, the first non-profit organization to offer microfinance services in Bangladesh and in the world (New York Times). This bank showed the world on how little

Microcredit is a financial innovation that is considered to have originated with the Grameen Bank in Bangladesh, and Muhammad Yunus is its founder. This Bank offers collateral free loan to rural poor women. Women are afforded the opportunity of education and access to health care, reduced unemployment, so that their families and communities prosper. The future of the Microcredit is very bright now because it plays an important role for the development of poor families. This system is being introduced in both developing and developed countries of the world. The relationship between Muhammad Yunus’s Grameen bank and women’s lives is important because he helps poor women to be independent and economically support their family. Because of

The Indian population lacks opportunities such as financial resources and the ability to get jobs. They are stuck in an endless cycle with no opportunities for people to lift themselves out of poverty. Microcredit has been used as a method by governments in developing countries, international funding organizations and donor agencies, in order to help the poor make money since the 1950’s. During the 1950s and1960s, the Indian government started disbursing loans to families in rural areas that worked in the agricultural sector as well as city-dwelling families to promote economic growth throughout India with collaboration with the Indian Government. Households in the agricultural market were divided into three different groups of workers who

In recent months a new concept of micro financing has created intrigue. Micro financing has many definitions but the most popular reference these days is the practice of informal loans between individuals rather than institutions (peer to peer Micro loans). Micro financing first became popular in third world countries where entrepreneurs were able to start businesses for as little as twenty-five dollars. Many were able to quickly repay their loans and often times become grantors of other peoples loans. This created a formula for prosperity though admittedly on a small scale. As micro financing web sites began to pop up for use in more industrialized nations one question became obvious. The maximum request is capped at ten thousand dollars with most micro financing organizations. So what enterprises would actually benefit from the loan? There are not a large number of start up businesses that can be built in the modern world for a mere ten thousand dollars. Most franchise opportunities require well over a twenty-five thousand dollar initial investment. Even legitimate home based businesses are not cheap. Surprisingly entrepreneurs seem to be able to do a lot with limited funds. A little research on one of the more popular micro loan web sites www.kiva.org turned up a large number of people with success stories based on loan amounts far less than the maximum. No one had plans to start up a franchise but there were many people with clear and realistic goals. A large number of

Specifically, Grameen focused on the number and amount of loans and savings, self-sufficiency ratio and repayment rate as its primary measurements for organizational success. Negative consequences included the threatening of clients by loan officers, the public ostracizing of default clients by their community, over-indebting clients, limiting the access to savings, and hand-cuffing clients through mandatory savings products. As a result, through the international press and protests, opponents began to question whether or not microfinance was financially sustainable, exploited or assisted the poor, and was an appropriate method for poverty alleviation. Furthermore, Grameen’s focus on proving its financial sustainability lead to non-transparent and irrelevant financial reporting. Potential funders and investors began to question the validity of microfinance’s ability to alleviate poverty and to repay investments. Instead of abandoning microfinance, due to these protestations, Grameen restructured its business strategy and the industry designed a more reliable and relevant reporting methodology through the development of MIX.

2011). Supporters of commercial microcredit claim that microcredit clients’ major priority is the accessibility to finance rather than its costs, Porteous (2006), claims that the main priority for microcredit clients is the structure of the loan rather than its price, what really matters is the loan size, type of the loan and disbursement timing and procedures. This claim is usually supported by steady demand on microcredit regardless of the charged rates, and mainstreaming about high rate of return for micro-enterprises.

Microfinance is widely talked about throughout the world. Through the remote part of Bangladesh it kicked off its journey and gradually flew through the kingdom of light hovering clouds to spread its message. And the target group easily understood and promptly absorbed its mesmerising effect. This way credibility of the system was established within comparatively short span of time. In a World Bank estimate about 160 million from the developing countries at present take assistance through microfinance. However, credit goes to the Bengali economist Dr. Mohammed Yunus who invented in his factory the idea and threw it with a note that it would effectively absorb the shock of poverty and empower the

A single investor in a for-profit MFI is often able to provide a large sum of money than a non-profit MFI may have to secure from multiple donor sources. Additionally, because an investor is expecting some sort of return on their money, investors will be willing to make larger contributions to capital.

For example, some women use their microloans to create a family business based on local crafts. It is said that that “for every 100 taka lent to a woman, household consumption increases by 18 taka; interestingly the figure is 11 taka if the same amount was lent to a man”(Amin, Rai, and Topa). Although critics argue that loaning to women is not a shortcut to gender-equality, it is undeniably a step in the right direction. Some studies say that only 45% of loans given to women stay solely in women`s hands; yet, studies indicate that the very act of receiving a loan allows a woman to have more say in the household which, in turn, leads to the furthering of education and sanitation (mircoCredit). This supports the idea that loaning to women is not merely an investment in an individual, but an investment in a family. For example, Runi Mamun, of rural Nowapara, Bangladesh, uses her microloans to help the family. With only $1,000 worth of loans, she has started a jamdani (decorative sari) weaving business, which employees her family members, and bought a cow. On a more personal note, her newfound economic independence has earned her respect in her community. She plans not to marry unless her suitor is as financially stable as she (Burns). This ideology is a drastic departure from the male-dominated ideologies that pervade these rural, impoverished areas. In addition, the Grameen Kaylan

Microfinance is an emerging important financial factor which supply the basic financial services to poor and low-income households and micro-enterprises. Microfinance comprises several tools such as savings, credit, leasing, insurance and cash transfers. It 's role is to improve financial access of the poor and small economic players and thus help them to build assets, which means a contribution to poverty alleviation. These services are provided by a variety of institution, which can be divided into credit and saving cooperatives and association, banks, NGOs and non-financial and informal sources. . Providing financial services helps rural households to plan and manage consumption and investments, able deal with risks and improve their living conditions, health and education by smoothing household cash flow and increasing disposable family income.This paper presents an assessment of informal borrowing and lending in rural finance with a focus in its advantages and disadvantages as well as how it would relate to microfinance.

The MFI in India has been facing a lot of challenges in India recently. The challenges faced by MFI’s are listed below:

Microfinance, has to some extent improved and strengthened relations amongst women within communities. Microloans provided to women in groups ensures that the economic burden of repayments is one which women no longer have to bear alone but is instead shared, reducing the anxiety and pressure levels felt by women. The lending of microloans to groups of women, has created a sense of social solidarity, as women who are often in the same financial position can all contribute to creating successful microenterprises monitored and controlled by each other, reducing the risk of financial failure and collapse in addition to the reduction of collateral. This can be viewed as a