Microfinance: Improving the Standard of Living in Developing Countries

Typically, they have fixed workshop and capital investments but the character is still small and most of the production is meant for local markets. It is important to note that the number of employees is not the only measure of the size of micro credit enterprises. Other factors such as output, sales and asset levels may be equally appropriate indicators of the size of the firm’s operation. Currently, most of the loans to micro-entrepreneurs are provided primarily through the government, foreign aid assisted non-governmental agencies or informal money lenders. Financial institutions must recover their cost of servicing loans by interest charges and they must be confident borrower’s intent ability to repay. Financial institutions are also hampered by lack of formal collateral. This means the standard criteria used by the financial institutions are inappropriate for micro enterprise lending. To over-come this problem the government established a channel to direct their own programs with the objective of achieving social welfare and micro enterprise development. The Samurdhi Development Credit Scheme developed by the Ministry of Nation Building in Sri Lanka. This scheme was intended to serve the rural community through village level task forces called “Samurdhi Task Forces” which operated as a social intermediary. The task force used its members called “Samurdhi Development Officer” to select recipients of the

Likewise, individuals may not need to borrow as much as a usual business loan minimum and to do so would put them in unnecessary debt. Thankfully, some credit unions can offer microloans as little as $200. Such loans could be the key factor for a local family to start a small town business, which promotes economic growth in a community. Without a credit union’s aid, these small businesses would be unable to even begin, thus taking away an opportunity for both the community and its

10. In class we briefly discussed Micro Finance institutions (MFIs). What markets do MFIs typically serve? What are the major criticisms of MFIs? What financial institutions in the US closely resemble MFIs?

    Women in developing countries take out loans to start businesses and make money. Women struggling to make money take out these loans start a business to make money and pay off the debt from taking the loan. They are able to further support their family along with themselves as the debt is paid off and the business makes more money. Individuals living in poverty filled communities rely on informal employment to make money. Micro-credits have been directed more towards women because they invest money in goods and services. They do not need to depend on their husband for money when they have their own business to make money. When women take out loans to start their businesses they get stronger and get independence from their husband. When women invest in good and give services they help their family and themselves in an effective way. This could benefit women in poverty towards coming out of poverty.

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).

Micro-loans aid women in developing countries to become more independent from their husbands. Men in poor areas of the world, such as Africa are responsible for working and earning the money for their families. With the use of micro-loans, women become more independent and are viewed differently by their families. Rupert Scofield, Founder and CEO of microfinance institution Finca, insists, “The most empowering thing for women in the developing world is having

For Victoria’s case, she needs the money to buy more potatoes and quinoa to make sure her shop has all the proper vegetables (Kiva.org). If Victoria can keep her shop well stocked, she may attract more customers and make more money. By earning more money, Victoria can improve her quality of life. According to Plan Canada “microfinancing can lead to improved access to clean water and better sanitation while also providing better access to health care” (plancanada.ca). Research shows that microfinance loans are better suited for women because they are less likely to miss payments on their loan and it helps them feel empowered (plancanada.ca). By lending to Victoria, she will feel empowered and will be able to support herself and her family. Also, because she is a woman, she is less likely to miss

Micro credit is the process of helping the “poorest of the poor” obtain loans. Since big time banks rarely help people who need help acquiring loans, micro credit is another source that makes it possible for the lower class to achieve that. They focus on they call the “real economy,” where they are on personal relationships with their clients. They want them to succeed and help their clients change their own life. Compared to the big banks, they are not looking to make huge amount of interest back off their loan (paper chasers).

Background: For years since the rise of microfinance in the contemporary discourse of development, Chotacredit, a nationwide Microfinance institution, has been playing a leading role in the XXX region in providing accessible finance to low-income households as a catalyst for employment creation, poverty reduction, and gender equality. However, in recent practice, Chotacredit has found that the current loan-signing rule which requires co-signature by spouse may potentially limit female participation in the microloan program and program impact. A few valid assumptions have been made: 1. As currently, a loan contract must be co-signed by both husband and wife, and a significant share of the husbands of our female clients are truck drivers, the

80% of micro-loans in developing countries are made to women. A large majority of people living in developing countries are in poverty. Most of these people were living off of a dollar a day. Micro-loans have been created to help the people that need them. Women in developing countries are empowered by micro loans and they use that power to help their families, economy and ,gain more recognition in their culture.

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

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

Once the Era of apartheid had come to an end in 1994 the internationally development community entered South Africa promoting the microcredit model with high hopes to empower the poorest black communities to break loose from the poverty spiral, however the Microcredit model was seen to be having the complete opposite effect, ultimately causing incredible damage to the area. The microcredit model was supposed to be the means of bringing sustainable development to the extreme poor areas. The model has been named the “anti-development” intervention (1), because in practice it has only shown that it supports consumption spending. The poor are worse off than ever before; to keep up with the obligations of repaying their microloans, they are forced to sell the few assets they own or borrow money from friends or relatives or even worse take up new microloans in order to pay for the old ones. This is not the only downfall of this type of so called sustainable development; another problem that emerges from this is that the actual businesses emerging form microloans are anything but businesses elevating poverty. The type of business that has been arising from the microloans have only created hyper-competition amongst all the new businesses as well as the old ones, leaving about 40% of the South African population repaying debt. The poorest and most vulnerable are left behind to take care of themselves drowning in debt, while the private banks

High-efficiency technology has higher startup costs, but loans on a far smaller scale than historic stimulus packages can offset these costs. Currently, private investors fund microloans, though in the future they could come from the governments of developed nations. They are given to low-income individuals, generally have low-income rates, and are often given to those who operated small-scale industries. They range from twenty dollars to tens of thousands of dollars, depending on the institution the loan comes from and its intended purpose. Microentrepreneurship is a key factor in building economies from the small scale up. Environmentally, this prevents the large-scale environmental devastation more commonly associated with large-scale industrial economic development. In the past, large loans to governments to address this need have often resulted in misuse of funds from a social and environmental perspective. Microloans assist in the purchase of drip irrigation systems and the provision of funds to train labor in low/no-till farming practices allow the advancement of farming in an ecological way. Guy Vincent focuses on sustainable development relative to individuals who are caught within the cycle of poverty, arguing that micro financing is a way of empowering the poor and reducing debt. By focusing on individuals and communities, Vincent predicts that small-scale loans will create a more sustainable future. The assistance from other nations and from centralized power is