Microfinance: Supporting Poor & Marginalized Communities - Essay Sample

Introduction

Microfinance schemes were mainly established to support the poor and marginalized communities who could not have access to credits or financial extensions from the traditional banking systems. The microfinancing operation is largely purposed to meet the developmental needs of these sidelined groups to support their income-generating activities or ideas, small businesses financing, assets accumulation, or family financial needs endowment. Microfinance also provides non-exploitative credits as well as saving services to low-income population or people with limited financial resources aiming at improving their livelihood. Likewise, it encourages the saving culture amongst this particular population, as it is not a must the borrower to have enough collateral for them to acquire loans. Microfinance can be in two ways; profit or non-profit institution. The nonprofit micro-financiers engage in providing financial assistance to boost the living conditions of the poor, primarily for philanthropic/humanitarian motives. Whereas, the profit micro- financiers, seek to serve the neglected groups to make finances accessible to them.

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Furthermore, the individual seeking microfinancing loans are enlightened on the basic knowledge of managing finances, interest rates, the cash flow concept, how to operate saving account alongside the budgeting and debt management. After acquiring such knowledge, individuals now qualify for a loan which is approved by the institution. The terms of microfinance loans may differ from the traditional lenders; however, like the normal banks, the micro-financiers are preconditioned to bare interest. The microfinance loans have a specified repayment plan with a systematic payment due intervals. In case of any defaults, the micro-financiers have reserve the borrower savings account income as the loan insurance. Also, in other scenarios where borrowers are not in the position to offer collateral, individuals might be pooled together to cushion the loan. The recipients would now repay the loan jointly to boost their credit history, which gives them the potential of a much bigger financial borrowings.

Evaluating the Impacts of Implementation of Microfinance Scheme in Our Society

The implementation of the microfinance scheme have benefited the low-income groups positively in our society as it has mainly boosted their income and up-lifted their livelihood. The microfinance has, to larger extent, alleviate poverty, creating opportunities for individual with little to no asset to accumulate income through savings. Moreover, microfinancing have presented opportunities for cheaper loans with better rates of loan repayments. Thus, the micro-financier have been able to reach the low-income level groups, such as women who have benefited from these safer investments, which in turn have brought empowerment to them. Also, apart from the direct outcomes of microfinancing, individuals who have benefitted from the loans have now become job creators and entrepreneurs; who have played a role in economic development within their communities.

Discussing the Arguments for and Against the Microfinance Concepts

The microfinance wipes away the discriminatory approach of access to financial capital and services to the less fortunate. It has filled the gap that the traditional banking left when it denied these individuals access to credits. On the other end, with borrower's ability of the microfinance loan repayments, individuals can question the motives behind these micro-credit financing. Some may look it as opportunity to exploit the poor for the little they have in possession. In times when the borrowers default the payments, the institutions may employ coercive means to recover the loans, including controlling the assets of the defaulters or employing peer-group pressure.