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Rapid Development Of International Microfinance

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Question:

Discuss about the Rapid Development of International Microfinance.
 
 

Answer:

Notably, the global microfinance concept originated in South Asia  and Latin America in the year 1970 with the formation of credit and saving  institutions.Noteworthy,the global microfinance clientele has reached 200million (Writemypapers ,n.d.)Similarly, Europe developed formal credit facilities through institutions like the Peoples Bank, credit unions and cooperatives in rural areas. Propelled by high financial demand by the disadvantaged and the desire to stir economic development, global microfinance grew .Further sustainability and cost effectiveness qualities of the microfinance system has encouraged its expansion(Guntz,2011) Moreover, the formation of international microfinance network has boosted global microfinance activities across the globe.

Also, availability of technical and consultative support from established microfinance institutions to other developing global micro financers has boosted global microfinance.  Significantly ,economic development ,better living standards for the disadvantaged ,better infrastructure, more employment opportunities and global financial networking are some of the benefits of global microfinance Notably,management,investment and governance guidelines by large and established institutions has helped developing global microfinance institutions.Factually,inadequate government regulation of microfinance institutions has inhibited growth.

Initially, the idea of microfinance stemmed  from Bangladesh with microloans being offered to the disadvantaged.Notably,with the expansion of microfinance, donors invested into nonprofit organizations who provides easy and flexible credit facilities to the poor in a bid to eradicate poverty and empower the less fortunate(Deutsche Bank,n,d)However, with time the microfinance industry has developed into a commercial enterprise with the up scaling of some non-governmental organization transforming into financial institutions.Further,the development of greenfield banks has eroded the initial goal of helping the poor .Also, the venturing of banks into micro finance has further encouraged the growth and expansion of global microfinance.

Predominantly, microfinance is a poverty eradication tool with estimated 130m users over a period of fifteen years(Tischauser,2016) Through microfinance, persons living below the poverty line are empowered to create assets, boost income levels and reduce harsh economic vulnerability.Primarily,microfinance promotes better living standards, mental and physical health of less disadvantaged(International Finance Corporation,n.d.)The rapid development of the global microfinance services is attributed to international technological advancements, expansion and evolution of financial facilities and providers, existence of basic financial gap of supply in various economies.

Subsequently, the microfinance industry developed with non-government organizations joining the sector thereby increasing the number of microfinance providers through licensing and regulation. In addition, the entry of the World Bank and private financial stakeholders expanded the global microfinance activities (International Finance Corporation, n.d.)During the 1990s,the international finance corporation ventured into commercial microfinance through innovative, technological and developmental financial initiatives thereby boosting other international microfinance institutions hence the growth of international microfinance in  the world..

Notably, the  average rate of growth of global microfinance services stands at 10 to 15%.Noteworthy, Asia-Pacific regions are considered the fastest growing in micro finance with a 30 per cent growth rate in the year 2016.  Noteworthy, the United States recorded annual average growth rate of 39%.The growth of the microfinance industry is attributed to the universal recognition of microfinance as a tool for development and availability of funding and credit services by donors and investors (Chen, Rasmussen and Reille, 2010) Further, the popularity of international microfinance is due to easy accessibility of loans with flexible terms of repayment (Saeed, 2014)

 


However, in 2010, there was a microfinance crisis characterized by huge debts, suicides and high interest rates plus collapse of the United States of America housing mortgage system.)Notably, there are negative effects of microloans. For instance, increased child labor   has been reported in Bosnia   in connection with microloans(Provost,2012) Furthermore, profit oriented goals instead of poverty eradication and empowerment of the less fortunate is rampant in of some micro finance credit facilities.Inevitably,challenges facing the international finance sector such as competition and commercialization of capital might discourage other nations from participating like Norway.

Inevitably, the development of international microfinance institutions hasn’t been without challenges. Noteworthy, the financial instability, bureaucratic policies, state participation, cultural and value standards, fraud, few credit rating operations among other shortcomings (Saeed, 2014) Recently, commercialization of microfinance has led to its expansion and encouraged foreign funding. However, with the global financial crisis, loan repayment has affected the profitability of some global microfinance providers.  Also, underutilization and unavailability of technological capabilities in developing countries has hampered further growth. With the global nature of the micro finance institution, innovative, secure and creative technological measures are vital for global microfinance operations.

Further, commercialization of microfinance has provided opportunities and threats. Unaccountability and lack of transparency of microfinance activities has hampered growth and discouraged new entrants. In addition, inadequate risk management strategies has affected global microfinance network thus the need to invest in risk management strategies to strengthen global microfinance. Adaptability of financial institutions to the changing economic times has enabled growth of global microfinance .Also, innovative securities for credit services has enable access for many disadvantaged people to access microfinance credit facilities thereby furthering the expansion of microfinance(Hartungi,2007)

Further, trained personnel and transparent and accountability systems due to technological advancement has boosted microfinance activities globally.  Further, international microfinance is losing focus on development and poverty eradication and being commercial thus a challenge for modern international microfinance. Also, more international microfinance institutions are closing rather than coming out. Further, some are reducing their international microfinance stake (Provost, 2012) According to the Deutsche Bank, the global microfinance industry was affected by the global recession and the international financial crisis. In the year 2008.However, global microfinance has since grown despite slow asset growth.

Furthermore, the global microfinance industry has been affected by insufficient capabilities in some institutions and profit oriented goals by some institutions. Also, moral hazardness among microfinance staff and their clientele. In addition, rapid expansion of global microfinance institutions without requisite institutional controls has slowed down the rapid growth of globalized microfinance institutions (Deutsche Bank, 2012)Noteworthy, most economies have developed policies to improve financial access to large population thus furthering the development of Global microfinance (Deutsche Bank, n.d.)Significantly, asset volume increase with number of borrowers hence sustaining microfinance services globally.

Eventually, many financial institutions grew hence their ability to attract more funding from commercial based institutions as compared to donations making the microfinance industry to grow rapidly. However, following the global financial crisis growth slowed down but global microfinance is expected to grow and develop further.

 

References

Barr, M.S. (2004) Microfinance and Financial development. University of Michigan. [Online]Available at https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1060&context=articles[Accessed 5 May 2017]

Chen, G, Rasmussen and Reille, X. (2010) Growth and vulnerabilities in Microfinance. World Bank (US) [Online] Available at https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Growth-and-Vulnerabilities-in-Microfinance-Feb-2010.pdf[Accessed 5 May 2017]

Guntz, S. (2011) Sustainability and profitability of microfinance institutions. University of Applied sciences Nuremberg.[Online]Available at https://www.th-nuernberg.de/fileadmin/Fachbereiche/bw/studienschwerpunkte/international_business/Master/CAIFD/ResearchPapers/SustainabilityAndProfitabilityOfMicrofinanceInstitutions_Guntz.pdf[Accessed 5 May 2017]

Deutsche Bank. (2012)Microfinance in evolution: An industry between crisis and Advancement.Deutsche Bank.[Online] Available at https://www.db.com/cr/en/docs/Microfinance-in-evolution.pdf[Accessed 5 May 2017]

Tischauser, K. (2016) Microfinance market Outlook. Responsibility. [Online]Available at https://www.responsability.com/funding/data/docs/en/17813/Microfinance-Outlook-2016-EN.pdf[Accessed 5 May 2017]

Hartungi,R.(2007)Understanding the success factors of Microfinance institution in Developing countries.Researchgate.[Online]Available  at https://www.researchgate.net/profile/Rusdy_Hartungi/publication/23935165_Understanding_the_success_factors_of_micro-finance_institution_in_a_developing_country/links/54fecf380cf2741b69f16551/Understanding-the-success-factors-of-micro-finance-institution-in-a-developing-country.pdf[Accessed 5 May2017]

International finance Corporation. (n.d)Financial institutions: Microfinance. International Finance Corporation, World Bank Group. [Online]Available at

https://www.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/Industries/Financial+Markets/MSME+Finance/Microfinance/[Accessed 5 May 2017]

Provost, C. (2012) The rise and fall of Microfinance. The Guardian.[Online]Available athttps://www.theguardian.com/global-development/poverty-matters/2012/nov/21/rise-fall-microfinance[Accessed 5 May 2017

Rapid development of international Microfinance.Writemypapers.Org.[Online]Available at https://www.writemypapers.org/examples-and-samples/rapid-development-of-international-micro-finance.html[Accessed 5 May 2017]

Saeed,S,M.(2014)Microfinance Activities and factors  affecting the growth of microfinance in developed and developing countries.Macrothink.[Online]Available at https://www.macrothink.org/journal/index.php/ifb/article/view/5473[Accessed 5 May 2017]

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