Micro finance refers to providing financial services, credit and
savings to the poor who are running small businesses or would like to
start one and are in need of capital.
Small loans for small businesses, with focus on providing credit is the way that the industry has changed over the past few decades.
Banks are reluctant to give loans to the poor as they often do not have the required collateral and are considered high risk for them when it comes to repayment.
Since the banking system is out of reach for the poor they often often go to private moneylenders who lend at high interest rates, making the poor debtors for life and continuing in poverty as they cannot pay back the loans for years to come.
Financial services have been lacking for the poor who are totally ignored by the banks and exploited by money lenders.
The access to financial services through micro finance allows the poor to obtain small loans at nominal interest to expand or start new businesses.
This generates income to improve their living conditions.and by starting small business such as tailoring, masonry, they are able to create employment for themselves and others including facilities for depositing savings that makes savings a habit.
Micro-finance institutions provide financial services that were made available to the poor to provide them loans to run small businesses, build assets, ease consumption, and manage risks in addition they offered freedom from moneylenders.
Micro finance is a source of financial services for the small businesses, entrepreneurs, social sector and viewed as a way to reduce poverty.
In rural areas and urban slums, small groups of family members and friends are created and these groups mostly consist of women as they are considered to be more responsible when it comes to managing money.
These groups are supervised by who create rules around savings and lending among group members and after a few members of the group that are accepted for a loan, the rest have to wait for that loan to be repaid before they can obtain their own loans.
Peer pressure from other group members to repay the initial loan amount helps maintain a higher rate of loan repayments.
Micro finance which proved poor to be credit worthy, it has blossomed all across in the developing world having provided loans to millions of clients.
The high repayment rates have led commercial banks to join in to provide loans and make profit from those previously known as unbankable.
The profitability from lending to the poor has led micro finance institutions to raise money from commercial investors such as banks, private equity firms went public.
High repayment rates due to group lending and nominal interest rates helps to achieve economic sustainability and to scale and grow their financial services for the poor.
In recent years the micro finance industry has shifted from its original goal of social maximization to profit maximization.
The coming of commercial investors has led to high profits are being made by hidden charges and high prices leading to the poor suffering the consequences.
High interest rates, multiple lending and group pressure from non-repayment has caused problems in the functioning of these institutions.
Due to these challenges, it is not yet known if the loans that are made for starting micro enterprises are valid, since the borrowers often lack business knowledge to grow and sustain the business and often leads to failure.
The long-term impact of micro finance remains to be seen due to unfortunate but avoidable misuse of the facility for the poor.
Micro finance can has made an impact on global poverty for certain people like those with an entrepreneurial spirit in certain places, those where entrepreneurs are that free to grow and sustain a business.
It is not something that will lead to the eradication of poverty, but it can and should be a part of the solution.
Small loans for small businesses, with focus on providing credit is the way that the industry has changed over the past few decades.
Banks are reluctant to give loans to the poor as they often do not have the required collateral and are considered high risk for them when it comes to repayment.
Since the banking system is out of reach for the poor they often often go to private moneylenders who lend at high interest rates, making the poor debtors for life and continuing in poverty as they cannot pay back the loans for years to come.
Financial services have been lacking for the poor who are totally ignored by the banks and exploited by money lenders.
The access to financial services through micro finance allows the poor to obtain small loans at nominal interest to expand or start new businesses.
This generates income to improve their living conditions.and by starting small business such as tailoring, masonry, they are able to create employment for themselves and others including facilities for depositing savings that makes savings a habit.
Micro-finance institutions provide financial services that were made available to the poor to provide them loans to run small businesses, build assets, ease consumption, and manage risks in addition they offered freedom from moneylenders.
Micro finance is a source of financial services for the small businesses, entrepreneurs, social sector and viewed as a way to reduce poverty.
In rural areas and urban slums, small groups of family members and friends are created and these groups mostly consist of women as they are considered to be more responsible when it comes to managing money.
These groups are supervised by who create rules around savings and lending among group members and after a few members of the group that are accepted for a loan, the rest have to wait for that loan to be repaid before they can obtain their own loans.
Peer pressure from other group members to repay the initial loan amount helps maintain a higher rate of loan repayments.
Micro finance which proved poor to be credit worthy, it has blossomed all across in the developing world having provided loans to millions of clients.
The high repayment rates have led commercial banks to join in to provide loans and make profit from those previously known as unbankable.
The profitability from lending to the poor has led micro finance institutions to raise money from commercial investors such as banks, private equity firms went public.
High repayment rates due to group lending and nominal interest rates helps to achieve economic sustainability and to scale and grow their financial services for the poor.
In recent years the micro finance industry has shifted from its original goal of social maximization to profit maximization.
The coming of commercial investors has led to high profits are being made by hidden charges and high prices leading to the poor suffering the consequences.
High interest rates, multiple lending and group pressure from non-repayment has caused problems in the functioning of these institutions.
Due to these challenges, it is not yet known if the loans that are made for starting micro enterprises are valid, since the borrowers often lack business knowledge to grow and sustain the business and often leads to failure.
The long-term impact of micro finance remains to be seen due to unfortunate but avoidable misuse of the facility for the poor.
Micro finance can has made an impact on global poverty for certain people like those with an entrepreneurial spirit in certain places, those where entrepreneurs are that free to grow and sustain a business.
It is not something that will lead to the eradication of poverty, but it can and should be a part of the solution.
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