The Contribution of Microfinance Institutions to Poverty Reduction 


Nowadays there are many microfinance institutions that help rural people to avail financial services and loans to low income clients or to lending groups.  The microfinance is very helpful to those consumers and self-employed individuals who do not have access to banking loans and other financial services.  Generally, microfinance is a cooperative which has an objective to provide varied high quality financial services top the many poor and near-poor households.  And, the most interesting part of it is microfinance not only offers loans but as well as savings account, insurance and money transfers with a very low maintaining balance that poor people can really afford to invest or save money regularly.    In this connection, microfinance, has offered a wide range of services which includes also the micro credit.  Microcredit refers to the condition of credit or loan services to poor clients.  Typically, banks do not allow their clients to avail financial loans or credit who are in below income bracket.  The banks always make sure that their clients have a permanent job as well as sufficient monthly income and have enough   assets as collateral before the bank approves loan applications.   They always consider the fact that the clients have the financial capability and stability to pay for the amortization of the credit or loan.  In contrast, poor people do not have many assets that can be secured by a bank as collateral.  And, because of these circumstances, poor people more often borrow from moneylenders who give high interest rates in exchange of quick release of loans.  In fact, moneylenders are always there for any loan emergency.  They are always flexible with the borrowers who run into their lending shops for financial problems or emergency cases. 


(http://www.idrc.ca/cp/ev-115786-201-1-DO_TOPIC.html)


 Nevertheless, the founders of the microcredit movement in the 1970s have built financial institutions that can provide financial assistance to the poor people with a very minimal interest.  Correspondingly, microfinance institutions have the basic principles and goals for the poor clients aside from providing loans, savings, insurance and money transfer services.    First goal of microfinance institutions is to further assist the poor households to increase their income and build up their assets.  Second is to integrate or to manage the loans of the poor clients in such a way that the loans will be paid for itself continuously under any circumstance. 
Third is the microfinance institution aims to build permanent local institutions.  There are various donor funds from a number of  non- government organizations as well as the government   that both aim to provide financial services as giving donations and donor funds that aligned with the private capital.  As a matter of fact, microfinance is currently considered as an effective tool for socio-economic development through the great help of various charity institutions.  This is the reason that poor clients who could no longer repay a loan, must have a charitable donor that willing to pay the whole amount of loan. 


(http://en.wikipedia.org/wiki/Microfinance)


Furthermore, there are many professionals and donors from charitable institutions who limit or restrict microcredit to loans for only important and productive purposes. There are many small time entrepreneurs now who are given chances by these microfinance institutions to start any business that requires only small amount of capital.  And, as poor people gained access to loans from microcredit institutions it is very apparent that it is needed in every part of the globe.  It is also great evidence that a lot of people are applying for any financial services because the poor clients know very well that micro finance services truly help them to elevate their low economic status.  In the same fashion,   poor people want to get out from poverty situation by borrowing, putting up business and increasing their profit.  More than that, many poor borrowers are really reducing their poor burdens through engaging themselves into business ventures.  These people are strongly motivated to use the money that they have loaned in the useful consumption as for micro enterprise.  This is   a safest form of saving money and money withdrawal if in case the member needs it for emergency.  At present time, microfinance is already operated through a financial system and approach that provide high quality of loans to urban and near urban areas as well as with entrepreneurial households.  It has been steadily improved in delivering ad providing financial services to the poor clients. Subsequently, many people all over the world are already aware of microcredit program that especially promoted for the improvement of the life of the world’s poorest people.  At the same time, to help these people to have bread and butter in order to live decently and fruitfully.


 (http://en.wikipedia.org/wiki/Microfinance)


References:


(http://www.idrc.ca/cp/ev-115786-201-1-DO_TOPIC.html)


(http://en.wikipedia.org/wiki/Microfinance)


(http://en.wikipedia.org/wiki/Microfinance)


 



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