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Effect of microfinance in economic development
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Microcredit can be defined as small loans, or microloans, for people around the world in extreme poverty to help spur entrepreneurship. The issue of microcredit is extremely important in the world’s economy. Poverty alleviation and economic development are the primary goals of microcredit programs, that is why they began in the developing countries of Asia and Latin America, economist Muhammad Yunus and his Grameen Bank in Bangladesh are credited of pioneering this financial innovation (Smith, Thurman, 2007). After acquiring a loan, impoverished people get involved in self-employment projects that help them to start a business and begin generating income and in many cases leave poverty. Microcredit offers loans to poor people without requesting any financial history from them. These loans help to improve the quality of life of individuals and communities through commitment. In recent years, the idea of giving small loans to poor people became the darling of the development world, giving a way to propel even the poorest people into better lives (Jolis, 2011).
Since its emergence, microcredit has been viewed as a very important tool for development. Many around the world believe microcredit is the antidote for global poverty. Although the Grameen Bank focuses only on people from Bangladesh, different microfinance institutions had been established around the world. Accion International is one example of these institutions in Latin America, which started providing loans in 1973 (The history of microfinance, 2005). These financial institutions started to grow rapidly due to high demands of small loans. Poor people around the world started to lose faith to their countries’ authorities to provide for their well being and started to tur...
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...e of the challenges that the Grameen Bank has faced in the last years is that the government believed that citizens from Bangladesh are just growing a big dept that will only damage their lives in the future. However, as stated before, 98% of the loans have been repaid.
Overall, microcredit has helped millions of people around the world and it continues to have a great impact on poor people, informing them that all they need is a little ‘push’ or start-up money to begin creating a better life and subsequently a better community. Each organization has its own goals and purposes depending on the country where they reside as well as different challenges that have appeared. Microcredit is helping poor people and small business owners to better themselves as well as to their families and have their time, skills, and ideas utilized in an effective and positive way.
Seibel, Hans Dieter and Fabrizio Felloni. 2005. “Mainstreaming Banking with the Poor in the Philippines.” Internationales Asienform 36(3/4): 361-375.
“…increasing international trade and financial flows since the Second World War have fostered sustained economic growth over the long term in the world’s high-income states. Some with idle incomes have prospered as well, but low-income economies generally have not made significant gains. The growing world economy has not produced balanced, healthy economic growth in the poorer states. Instead, the cycle of underdevelopment more aptly describes their plight. In the context of weak economies, the negative effects of international trade and foreign investments have been devastating. Issues of trade and currency values preoccupy the economic policies of states with low-income economies even more than those with high incomes because the downturns are far more debilitating.1”
The bank failure in Jamaica illustrates how negative mindsets and behaviors can devastate the financial system and disrupt economic growth. The primary role of any bank is to safeguard its customer’s money, offer interest rate on deposits, lend money to creditworthy individuals, and make sound investment decisions to maximize shareholder value. Because of rapid economic growth between the late 1980s and early 1990s in Jamaica, the Central National Bank (CNB) and Worker’s Savings and Loans Bank (WSLB) loosened their monetary policies, provided preferential interest rates and extended credit beyond what was reasonable to members of its own board of directors, managing directors, and officers of the bank. These actions posed significant risks to the bank and its future.
These are national or regional financial institution designed to provide medium- and long-term capital for productive investment, often accompanied by technical assistance, in poor countries.
The lifestyle of people across the world is developing rapidly. As there is a growing concern for people about the lifestyle and way of living, the scope for the microfinance industry is also at a growing pace. A large number of people across the world prefer finance for the purpose of purchase of consumer durables as well as lifestyle products. As the credit card EMI options are more expensive, people prefer NBFCs for the purpose of consumer durable loans. The project done in bajaj finserv explains the role of NBFCs in the consumer durable loans and the procedure undertaken in order to disburse the consumer durable loans.
The International Monetary Fund and the World Bank were created as a result of the Bretton Woods Conference. Both provide assistance to countries suffering economically. While the IMF is a cooperative institution that aims to create an organized global system of payments and receipts, the World Bank is an institution that aims to help developing countries (Driscoll 1). Both play a part in the economies of struggling nations with the goal of reducing their burden and helping them to survive in the global economic system. Unfortunately, in many cases their practices within developing nations have been seen to create more harm than good. This is possibly because both institutions use a one size fits all approach when aiding countries rather than gaining a deep understanding of each country they are involved in and catering their approach as a result. In this paper I will examine the practices of the IMF and World Bank in developing nations that have led to failure and the effects the policies had on these countries.
In article “The Rise of Crowdfunding: Social Media, Big Data, Cloud Technologies” by David Colgren, the rise of crowdfunding is a moment to expand the reach of capital in assisting the SMEs marketplace, which have a less scope to increase. The law is designed (Jumpstart Our Business Startups Act in 2012) such that it provides cost-effective access to capital to make possible expansion of SMEs using crowdfunding. Crowdfunding provides mechanism to raise fund to develop their business expansion of the SMEs and it also provides security to backers from fraud business by enforcement of laws and awareness.
Small businesses have been considered the mainstay in countries around the world. In many European countries for example, the small business has been considered crucial to the success and flourishment of the country in general. Most individuals start upon a small business venture in the hopes of realizing ownership, independent profits and personal success. Small businesses can prove extremely successful when planned properly. Studies suggest that several small businesses, however, close or fail within the first few years of operation. This failure suggests that a majority of small business owners may not have as yet realized the crucial success factors necessary for successful implementation of a small business.
Crowdfunding is a new sector and is still developing. It is an exciting opportunity for many of the new, small and medium scale industries whose proposals are rejected by the banks.It may be confusing to most of the users as it is presented in many ways. We have there aspects in Crowdfunding investments or donations, platform, project creators. Crowdfunding works as first the idea or the proposal of the person is uploaded into the platform in which all the donators are registered. The donators view the proposal of the person and then decide to invest o...
A recent cross-country report presented by authors Rafael La Porta and Andrei Shleifer that appeared in the Brookings Papers on August 2008 aims to improve the understanding of the relationship between economic development and the informal economy. The report distinguishes between three alternative views of the role of informal economy in development. The Romantic View: According to this view unofficial firms are either actually or potentially extremely productive, and are held back by government taxes and regulations, as well as by lack of secure property rights and of access to finance. Pending the necessary legal reforms “four billion people around the world are robbed of the chance to better their lives and climb out of poverty, because they are excluded from the rule of law” (United Nations, 2008, page 1). If the barriers to officialdom are lowered and capital is supplied through micro finance, unofficial firms will register, borrow, take advantage of other benefits of official status, and by doing so expand and spark economic growth. The key aspect of this optimistic view is that unofficial firms are fundamentally similar to the official ones, but kept down by policy. In particular, unofficial firms should look similar to official firms with respect to characteristics not affected by government policies, such as the characteristics of entrepreneurs (e.
A microfinance institution (MFI) is an organization that provides microfinance services, ranging from small non-profit organizations to large commercial banks. “An MFI can be broadly defined as any organization such as credit union, down-scaled commercial bank, financial NGO, or credit cooperative, etc. that provides financial services for the poor."
Within every major economy, a great factor in providing the energy of the core of the nations economy is the small and medium enterprises. These cluster of firms are what provide new economic activity, new innovative products and services, along with growing employment and in general a crucial system in ensuring the economy is at a stable growth level. With a majority of this activity stemming from family controlled or managed businesses, the focus on developing a global and long term perspective for these firms are ever growing in importance because of the global perspective entrepreneurship has started to take.
Most poor people manage to mobilize resources to develop their enterprises and their dwellings slowly over time. Financial services could enable the poor to leverage their initiative, accelerating the process of building incomes, assets and economic security. However, conventional financial institutions seldom lend down-market to serve the needs of low-income families and women-headed households. They are very often denied access to credit for any purpose, making the discussion of the level of interest rate and other terms of finance irrelevant. Therefore, the fundamental problem is not so much of unaffordable terms of loan but rather of the lack of access to credit itself.
The first and arguably most common effect of poverty on society is its financial impact (Veritta, 2008). In many of the societies that experienced significantly high levels of poverty, debt was increasingly common, and especially debt accrued from moneylenders (Hatcher, 2016). For many individuals living in poverty, access to financial services such as banking is often stifled and rudimentary, making it difficult for such individuals to access self-improvement loans at standard and fair rates (Yoshikawa, Aber, & Beardslee, 2012). For these individuals, moneylenders are the best option available, which results in them paying exorbitant interest rates. The interconnection between poverty and finance, however, is cyclic in nature. The lack of finances or access to financial services causes poverty, which in turn causes an isolation of individuals from finances and financial services (Hickey & du Toit, 2013). This makes poverty a fairly complex problem to
Entrepreneurship is an important aspect of social, economic and community life. It can be viewed as a critical factor to economic growth as well as a way of addressing unemployment (Nolan, 2003).Entrepreneurs are people who are persistently focused on identifying opportunities, they seek to create something worthwhile while taking into account foreseeable risk and rewards associated with the efforts (Nolan, 2003). Furthermore, entrepreneurs are frequently understood to be individuals who discover market needs and establish new business to meet those identified opportunities. The following assignment will firstly discuss the types of entrepreneurship, secondly it will discuss the reasons people become entrepreneurs, and thirdly it will discuss the importance of entrepreneurship.