MFI sustainability: The role of subsidies and grants
Microfinance institutions (MFI) have created intense debates in an industry of traditional banking. Being primarily focused on mission of poverty reduction through economic stimulation of low income areas, MFI have sharpened the credit policy to specification of area of interests. The major distinction is loan interest rate being notably higher in comparison to profit orientated financial institutions (Rosenberg et al. 2009). The reason roots in excessive cost of funds and administrative loses faced by growing industry. As noted in Cull et.al (2009), interest paid by borrowers represents the struggle of MFI to overcome the burden of expenses and achieve financial sustainability. The latter however, can be reached by altering the capital structure of MFI through diversification of source of funding or rejection of capital which can lead to malfunction. As soon as the changes are implemented, institutions can proceed to expansion reaching increasing return to scale and beneficially affecting sustainability. This essay would focus on the role on subsidies in performance of MFI. The rationale behind exploring this form of noncommercial capital is that total amount of subsidized capital in MFI reached almost 16 billion in 2009 (Bloomberg, 2012) posing a question regarding the alternative and probably more efficient use of respective funds to support poor. The second reason derives from the number of researches discussed later,
The book, Microfinance and its Discontent: Women in Debt in Bangladesh written by Lamia Karim, gives us account on what causes a culture to be known as “economy of shame” status, such as in the case of Bangladesh. She writes on a subject that is a top list priority in the economical world these days, the corrupt ways NGO’s lenders do business not only in Bangladesh but across the world, however, she centralizes her views on Bangladesh and only a handful of NGO’s. Even though this was primarily a look at Bangladesh, it has resulted in capturing the attention of people across the globe not only with the NGO’s mention in the book but resulting in a closer look at all NGO’s and how they serve the people. Karim shares with the readers how the 1980’s nongovernmental organizations (NGOs) led in the way of microfinance institutions and claimed that they were providing women with an empowerment tool by issuing them loans. We find that over 80% of borrows are women and most are economically challenged already. With that being stated Karim also takes a look at how and why that is, she discusses the long term effects it is having on women and how it is furthering the exploitation of women in Bangladesh. She looked at how this type of exploitation has not only weakened further women’s economy in Bangladesh but has also strengthen the power NGO’s have over the people (mainly women) at the same time. It takes a look at this type of expansion and brands NGO’s use as a “shadow state
They say in case of emergency situations you need to help yourself first then only you would be better able to help others. Getting time for one self and breaking the old patterns would be hard but what will happen to my family if I am not mentally, emotionally or physically healthy? I will reflect nothing else but only bad to them and this will make my condition even worse. The worse may happen when they will start making distance from me. Everybody likes people who are happy with positive attitude.
Ambition a passion that never fails you and will never let you fail it, and this is why it will ultimately cause the downfall of the individual. In the novel Frankenstein and in the Play Macbeth, ambition is the main theme in these two pieces. Both Victor and Macbeth had great dreams of accomplishing certain things that defy a higher order. Ambition drove both of them to strive for what they want and never give up on their dreams. Ambition without doubt help or even single handling brought Macbeth and Victor to their dreams. Ambition is the best quality that a person can have, it allowed Victor and Macbeth to achieve what they always wanted. Whatever can bring you to the top, also has the power to make you fall harder then you fell before, being overly ambitious can also destroy a person and people that surrounds this individual. Victor and Macbeth succeeded in accomplishing their deepest desire but this does not mean they have succeeded in achieving happiness.
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,
The financial structure also comprises of the microfinance institutions (MFI) which include SACCOs of Tier 41 by grading, providing financial services to people in peri-urban and rural areas. Since 2009, there has been a tremendous evolution in mobile money services that has changed Uganda’s financial landscape to include a large proportion of the population that was formerly excluded from the financial services sector.
Think sports and all the choices you made in sports. I am sure there is a lot of them. I mean everybody has or will make the choice to do sports. To me sports benefit me in more ways than you can imagine. In the end though, there is always a con to sports and that is the problems it causes.
Microloan is one of the popular and effective method of reducing the poverty supported by all the countries of the world especially the developing countries. This is an inspirational story started by a common man in late 1970’s looking at the extreme poverty in his country. Micro loans or Micro Financing was first started by Muhammad Yunus in Bangladesh. He started an Organisation called Grameen Bank. The Grameen Bank provides small loans without collateral to small group of borrowers. This small financing group later grew to large micro financing organisation by lending money to thousands of people in the world. With the inspiration of Grameen Banks in Bangladesh several small micro financing institutions sprang up around the world and a new movement called International Microfinance Movement began in all the major continents of the world.
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
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
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
Several developing countries are sunk in debt and poverty because of the arrangements of global establishments, for example, the International Monetary Fund (IMF) and the World Bank. Their projects have been vigorously reprimanded for a long time and have been constantly blamed for poverty. Moreover, developing countries have been in constant expanded reliance on the wealthier countries, despite the IMF and World Bank's claim that their main goal is to fight poverty (Shah, 2013). During recent decades, the poorest nations on the planet have needed to swing progressively to the World Bank and IMF for money related help, because their impoverishment has made it unthinkable for them to acquire somewhere else. The World Bank and IMF connect strict
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.
The definitions of microfinance in literature show that it is a means of taking financial resources to the poor through the establishment of flexible institutions. From the definitions, microfinance is an
Capital assistance for the project will bring to the process of capital accumulation, economic growth and rising incomes among households receiving benefits from the assistance provided. Through microfinance programs and higher yield expected poverty trap can be destroyed and capital accumulation will occur. This growth is evident in the increase in household savings and government investments that can be made after the households that experienced an increase in revenue from the projects undertaken, start paying taxes or contributing zakat revenue to the government. The Government, through tax revenue or charity is able to perform a variety of other development projects that will benefit more people.
Cagetti and Nardi (2006) argue that financial development is beneficial to the individuals who have higher ability to make investment and then become the entrepreneurs. In contrast, the individuals who are relatively more common could not make human investment and then become the workers. Therefore, the whole society’s inequality gap will be widen.