Page 42 - Banking Finance January 2018

ARTICLE

offered by normal banks, some opponents of this concept usably large sums of money, this expands their choices and
raise concern that microfinance operations are making prof- reduces the risks they face. Suggested by the name, most
its off of the poor. Not all funds provided through micro fi- transactions involve small amounts of money, frequently less
nancing are used for productive activities, some may be than 100. The origin of microfinance is often dated as late
used for covering needs, such as food and shelter. as the 1970s. Only then, it is often argued, did any pro-
grams pass two key tests:
Micro financing Operating Locations 1. Show that poor people can be relied on to repay their
loans, and
The majority of micro financing operations occur in devel-
oping nations, such as Uganda, Indonesia, Serbia and Hon- 2. Show that it's possible to provide financial services to
duras. Even though the borrowers often qualify as very poor, poor people through market based enterprises without
repayment rates are often seen to be higher than the aver- subsidy.
age repayment rate on more conventional forms of financ-
ing. For example, the micro financing institution Opportu- Concept of Microfinance:
nity International reported repayment rates of approxi- The concept of micro credit can be traced back to portions
mately 98.9% in 2016.
of the Marshall Plan at the end of World War II in the middle
of the 20th century or even back to the mid 1800s and the
International Finance Corporation Esti- writings of abolitionis / legal theorist Lysander Spooner who
mates wrote concerning the benefits of numerous small loans for
entrepreneurial activities to the poor as a way to alleviate
The International Finance Corporation (IFC), part of the
poverty. It is also tied to New York's Provident Fund. How-
larger World Bank Group, estimates that more than 130
ever, in its most recent incarnation it can be linked to sev-
million people have directly benefited from microfinance-
related operations as of 2014. However, it is only available eral organizations starting in the 1970s and onward.
to approximately 20% of the 3 billion people who qualify as
part of the world's poor. Micro Finance in India
The Government of India is ruling some regulation for the
In addition to providing micro financing options, the IFC has Microfinance / Micro credit industry in India and in his bud-
assisted developing nations in the creation or improvement get speech on 28 February 2006, the Finance Minister P
of credit reporting bureaus in 30 nations. It has also advo- Chidambaram said "I had proposed major initiatives in respect
cated for the addition of relevant laws governing financial of micro finance in the last Budget; RBI has since issued guide-
activities in 33 countries. lines to enable banks to appoint banking correspondents and
banking agents. A window to access ECB funds has also been
Microfinance is a term for the practice of providing finan- opened. A bill to provide a formal statutory framework for
cial services, such as micro credit, micro savings or micro the promotion, development and regulation of the micro fi-
insurance to poor people. By helping them to accumulate nance sector will be introduced in this session".

Today Micro Finance:
The World Bank estimates that there are now more than 7,
0000 microfinance institutions, serving some 16 million poor
people in developing countries. CGAP experts estimate that
500 million households benefit from these small loans. Cam-
bodia and Kenya were put forward as examples. Asia and
the Pacific region represent 83% of the opened accounts in
developing countries, which is equivalent to 17 accounts for
100 persons.

In November 1997, more than 2000 delegates from 100
countries gathered at a Micro credit Summit in Washing-

42 | 2018 | JANUARY | BANKING FINANCE

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