Impact of Microfinance Upon Developing Countries

In both developing and emerging economies, microfinance has vastly and increasingly been seen as one of the most important means for enhancing the lives of the poor and therefore a major tool for economic and social development mostly in rural areas. Lately, contrary to this widespread belief, critics have raised eyebrows against this growing popularity of microfinance as a major tool for enhancing economic development. Contrary to belief, they are of the opinion that microfinance is a ‘make-belief’ that is hindering economic and social development rather than enhancing it.

269). There is no easy way for those with little money to begin earning interest on savings or obtain loans with reasonable interest rates: the banking community is failing the poorest people (Banerjee & Duflo, 2012, p. 269). Also, Banerjee and Duflo (2012) assert that medical and agricultural insurance are not favored by the poor in spite of the fact that they could benefit greatly from such products (269). Their proposed solutions come in the form of microcredit (to provide access to more reasonable loans), electronic money transfer systems (to reduce the fixed costs of saving), and rewarding people for making good financial decisions (either via markets or the government if needed) (Banerjee & Duflo, 2012, p. 270). The incentives could even be something unrelated, such as bed nets, which then help the recipients in more than one way (Banerjee & Duflo, 2012, p. 270). This would need to be coupled with government regulation so that unscrupulous individuals wouldn’t have a way to easily game the system (Banerjee & Duflo, 2012, p. 270).

Microfinancing produces many benefits for poverty stricken, or low- income households. One of the benefits is that it is very accessible. Banks today simply won’t extend loans to those with little to no assets, and generally don’t engage in small size loans typically associated with microfinancing. Through microfinancing small loans are produced and accessible. Microfinancing is based on the philosophy that even small amounts of credit can help end the cycle of poverty. Another benefit produced from the microfinancing initiative is that it presents opportunities, such as extending education and jobs. Families receiving microfinancing are less likely to pull their children out of school for economic reasons. As well, in relation to employment,

Small businesses are the cornerstones of local communities, creating jobs and spurring innovation. They serve $4 million small businesses nationwide and are a top SBA lender for women and minority-owned businesses. A small business loan is one of the most treasured commodities in the business world. It is still very hard to get despite the claims and promises of banks, credit unions and other lending institutions that they want to help American small business to survive and grow. In fact it sometimes seems that banks and other lenders want to see small businesses fail and only support those that survive the battle for customers, revenues, and finances during their first two years. JPMorgan Chase supports programs around the world to help individuals manage their daily finances, withstand unexpected emergencies and meet their long term goals. They Identify, enhance and expand the availability of technology-based financial products. Also provide one-on-one financial coaching. So whenever you don’t get what’s going they will find a way for you to understand effective strategies to promote your financial health. They also have this program it’s called Pro neighborhoods it’s a 125 million initiative that addresses neighborhood quality issues that drive income and wealth inequality by providing communities with tools and capital that gives cross sector

In the same way Khandker state that, microfinance reduces poverty by increasing consumption among participants and their families. Degree of poverty reduction evaluate on the based on consumption impacts of credit show that about 5% of program participants can improved their families out of poverty each year by participating and borrowing from microfinance programs. (Khandker S. R., 1998, p.

Microcredit undoubtedly is easily sustainable to the public. For example suppose you had poor credit or no credit at all, you can still receive a lone (The Pros and Cons of Microloans). Because of this anyone can get a small lone. This show that no matter their position, microfinance can help. In addition the program targets under privileged citizens (What are the pros and cons of microfinance?). This shows that microcredit can help people in the toughest situations. As a result people can provide better for themselves and their family. However some claim borrowers can’t make a living because people can’t afford to pay back lones. Lastly microcredit is used all over the

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

Poverty, hunger, and malnutrition remain rampant across the world today. Countries such as Africa and Asia are struggling with high numbers of poverty and malnutrition, which is causing millions of men, women, and children to face death under the everlasting shadow of poverty. In order to eradicate the darkness of poverty, companies and institutions are taking up different initiatives to help those in poverty stricken countries. One such initiative is known as micro financing, which was created by a Bangladeshi economist, Muhammad Yunus. Micro financing are small loans given to people in poor countries who want to start a business or need some financial assistance. A famous website for micro financing is Kiva.org, which has been lending money to people since 2005 and has witnessed great success in doing so. The website has made the process of lending money to individual extremely simple and it is something that any individual can partake in. For example, If I wanted to lend some money to any of the numerous entrepreneurs on the website than I would first begin by choosing the lend category. After this, the website will list some of the most popular buyers on the right hand side and as of now, Emperatriz De América Group, which is a group of women who want to borrow money to buy fish. The website lets the lenders sort through different types of borrowers based upon how much money they are in need of. The one thing I liked the most about the website is

Microfinance is grown to one of the biggest areas in fighting again poverty, it can be discussed, if microcredits are the best option to help people out of poverty. In the past it was almost impossible for the poor population of the world to get a loan with acceptable conditions. Banks would not lend to the poor, because the risk of losing the money was too high for them, which meant poor people in Africa had no chance of getting a loan from big banks. The so called “money lenders” would take advantage of this situation, and give the poor an opportunity to receive a loan. The “money lenders” were not trying to help the poor, they just wanted to earn money, thinking on their own personal benefit. That’s why their loans have insane conditions with interest payments of a couple hundred percent. If someone could not pay back the loan in time, they would take everything from the customers, and maybe even kill them. This was the only opportunity for poor people to get a loan until microfinance was born. Another problem is, that women have been excluded from the banking system in general in some regions of the world, because that was nothing women would do in their culture. In most cultures it was implemented, that women are staying at home, taking care of the house, children, and food. Men would go to work and earn the money for the family needed for the cost of living. It would also be more complicated for women to get a loan, because they traditionally work less than men, and

Undoubtedly, microcredit is a fruitful development intervention. It can enable poor people access to financial systems and meet their basic needs and gradually enhance their economic sustainability (Simanowitz, In the course of time the idea questioned seriously and facing extraordinary challenges as Mulgan, et al. (2007, p. 8) noted social innovation does not happen easily. All innovative ideas have some challenges and criticisms In

Although micro lenders and conventional lenders both lend money, their motives differ greatly. Under the terms of micro lending, the main goal is to enhance the

Studies of the impact of microfinance in more than 24 countries have found high improvements in household income levels (Carr, 2002). Access to microfinance allows the borrower to reduce costs with lower interest rates and purchasing of raw materials. Income increases as the number of goods or services offered grows and product costs are reduced. Microcredit was initially created in developing countries where extreme poverty percentages are higher, but it also helps developed countries in a significant way. Even though the United States is one of the world’s greatest economies, microcredit helps micro businesses to develop effective financial plans and have an individual as well as collective growth.

Microcredit is based on a separate set of principles, which are distinguished from general financing or credit. The savings-ed microfinance has gained recognition as an effective way to bring very poor families low-cost financial services. It’s not only provided in poor countries, but also in one of the world’s richest country USA, where 37 million people live below the poverty line (Grameen Bank). In Grameen Bank even a beggar gets special attention. A beggar comes under a campaign from Grameen Bank, which is designed to convince to join Grameen programme. The bank explains how she can carry some merchandise with her when she goes out to beg from door to door and earn money, or she can display some merchandise by her side when she is begging in a fixed place. Grameen's idea is to graduate her to a noble livelihood rather than continue with begging. Such a programme would not be a part of a conventional bank's work.

The people that these loans are intended for are usually very poor and they only have enough capital for minimalistic survival, and therefore they do not have the credit in order to get loans from banks which pretty much leads to a trap. This trap of poverty and being “unbankable” is a major topic that microfinance focuses. Jeffrey D. Sachs, referencing his ideas, would agree that this is the curse of people stuck in poverty and they can not find the means to escape this “Poverty Trap”. Microfinance is a way of attempting to make the poor able to be able to produce capital at a steady rate from the usage of loans. I believe that this idea of poverty relief in forms of small loans in order to help those in need was first initially constructed in order to change the world for the better and sprout development. At the same time this idea could be implemented in a way that is a purely capitalistic point of view, and therefore the idea of ending poverty could no longer be the number one goal. A microfinance bank that thinks like this might only want the business that is generated from the poor, and they might not care about the conditions they live in or what the loan goes to as long as they get a loan repayment. “Pioneered in Bangladesh, by the mid-1990s microfinance had become a

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