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The article on Microfinance as a possible means of alleviating poverty in the developing world is an interesting piece that provides information on how micro-lending initiatives like Grameen Bank are helping the poor improve their domestic economic condition. Grameen Bank’s work over 30 years brought its founder Mohammad Yunus the Nobel Peace prize in 2006 for helping alleviate poverty (38). The author Susanna Khavul provides a lucid outline of microfinancing as it exists. Several micro-financing initiatives around the world have been created by the international banks, institutional investors, and foundations (38) besides individual investors. The micro-lending initiatives which led the activity have now diversified into other areas such as micro-savings and micro-insurance as well. The increasing availability of funds has also led to unwanted effects such as the ballooning of loans being taken, creating a possible payment crisis for the borrowers, and rising interest rates for borrowers, which conflict with the ideals of the initial founders of the movement.
The scenario for microfinance was set when traditional top down economic support programs failed to reach the people for whom they were meant, as a result of poor governance structures in the countries where they were needed most. This is compounded by the inability of traditional banks to reach these people, due to their inability to assess risk and creditworthiness, a critical requirement for them to preserve their assets. The microfinance solutions resulted from group lending initiatives where the group could keep oversight of the way the funds were being used and ensure they were utilized for the designated purpose. This results in better returns and lower defaults. Women are the majority of microloan borrowers, as they are able to run supplementary earning initiatives in order to support the primary earning activity of the earning male members (66). This helps spur entrepreneurial activity among women and drives their empowerment – both economic as well as social, since they are now seen as equally contributing members of the household (65). As the penetration of microfinance increases, the focus of researchers on this area is increasing, with many looking to measure the efficacy of the system under various conditions. It is critical to ensure that at such times, the correct data is gathered. There may be an inherent bias in reporting the data accurately, since loan officers who are the best point of contact of the researchers with the borrowers are likely to present their success stories rather than their failures (69). By guarding against this, researchers will in the long run be able to get a clear idea of how microfinance is working and what kind of influence it has on alleviating poverty as well as other social problems.
Bibliography
Khavul, Susanna. “Microfinance: Creating Opportunities for the Poor?” Academy of Management Perspectives, August 2010, 58-72.
