Microcredit Essay

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

In fact, Rosa’s husband started a savings club with his friends, which generated a surprise monetary gift one per month to one of the many participants. This method’s goal is to allow every person to change their family's present life condition and build on their economic status in a generous way where every single person is benefitted at a different time. Also, we see the use of Grameen’s loans which has allowed many villagers to better their businesses that they hoped to one day put a start to. For example, Rosa received a loan of two hundred dollars and was able to start her weaving business. In fact, with the money, she bought her supplies, and with the generated profits, she could pay for the education she always dreamed of but could never afford.

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).

Poverty has stricken many developing nations. However, there are many ways to limit things like this from occurring, micro-loans being one of those things. It is apparent that women in developing countries are empowered by micro-loans. Micro-loans are a small amount of money given to small businesses. Micro-loans help make women more independent and help them not rely on their husbands for money. It helps these women in poverty get their kids and themselves an education with the money they receive. Additionally, micro-loans make it possible for women starting a business, in order to make more money. There are many benefits for women receiving micro-loans.

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).

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,

Grameen Bank provides various services that benefit not just a group of people but the impoverished people in the whole world, starting from Bangladesh and spreading across to every part of the world where underprivileged people live. Speaking exclusively about the services of Grameen Bank, the organization specializes in providing small loans to impoverished farmers and other small startup entrepreneurs in Bangladesh and beyond without requesting collateral from loan recipients. That is apparently why the bank is popularly called ‘the bank of small business’ and their motto is ‘banking for the Poor’ (Grameen Bank, n.d.). Through its services, many communities have flourished and various startup ventures are

Mariam, a VSLAs member in Iganga, say in cases of illnesses or emergencies, she can cover the expenses with funds from the VSLA’s welfare fund. It is a great relief, because it prevents me from having to take my children out of school. Bruton et al. (2011) report that one of the major reasons for the failure of borrowers (particularly women) to effectively utilize loans to realize new business opportunities was the health risks of dependents rather than themselves. In societies with a limited or non-existent welfare state, the proceeds from micro-loans are often redirected to pay for medical and other “emergency” expenses rather than invest in originally envisaged new projects. Clearly, the extension of micro-insurance to cover dependents and

n this weeks lecture “Millennial Development”, Professor Fatmir Haskaj brought up various critical questions of poverty. Two key points in this weeks lecture are ‘measuring poverty’ and ‘globalized microfinance’. Professor Fatmir Haskaj touched on the reading of “Measuring Poverty” by Angus Deaton. This author mentioned there are many ways poverty has been measured throughout time. However, Professor Fatmir Haskaj noted that these were made a long time ago and so they are not up to date to what poverty is now. Poverty has no one definition nor does it have a definitive cause. There are many factors that go into what causes poverty. One that professor mentioned is that the poor subsidize the rich and thus the poor create poverty jobs. In another

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

Sohini Kar’s article revolves around the global financial market. However, her central focus is in Kolkata, India, where many who live in the slums owe microloans to private banks. The issue Kar raises is in a national platform, due to the fact that 60% of Indian population lacks formal financial services (481). This is a national issue due to fact that it traps many of their citizens in a never-ending cycle of debt, with no proper oversight. The time of her study was from 2009 to 2011, right after the financial crisis in Western countries. The author makes a comparison of the different dynamics loan officers are exposed to in terms of culture in India.

The generation of self-employment in non-farm activities requires investment in working capital. However, at low levels of income, the accumulation of such capital may be difficult. Under such circumstances, loans, by increasing family income, can help the poor to accumulate their own capital and invest in employment-generating activities (Hossain, 1988). Commercial banks and other formal institutions fail to cater for the credit needs of smallholders, however, mainly due to their lending terms and conditions. It is generally the rules and regulations of the formal financial institutions that have created the myth that the poor are not bankable, and since they can’t afford the required collateral, they are considered uncreditworthy (Adera, 1995). Hence despite efforts to overcome the widespread lack of financial services, especially among smallholders in developing countries, and the expansion of credit in the rural areas of these countries, the majority still have only limited access to bank services to support their private initiatives (Braverman and Guasch, 1986). In the recent past, there has been an increased tendency to fund credit programmes in the developing countries aimed at small-scale enterprises. In Kenya, despite emphasis on increasing the availability of credit to small and microenterprises (SMEs), access to credit by such enterprises remains one of the major constraints they face. A 1995 survey of small and