Friday, May 9, 2014

Constraints in the Rapid Development of International Microfinance

Simply put, micro-finance is a variety of financial services that caters to the poor and low-income clients. Micro finance are composed of micro-finance institutions who provides loans, financial assistance and other services in smaller monetary amounts to their low-income household borrowers while taking little or no collateral. There are many services under micro-finance such as, credit, savings, insurance, and money transfers.
Aside from providing funds to their underprivileged clients, micro-finance also aims to encourage entrepreneurship and self-sufficiency, manage financial risk by encouraging their client to acquire their own savings, empower women and to promote community-wide benefits.
Over the years, micro-finance has already gained a lot of support from different institutions, e.g. multilateral lending agencies, bilateral donor agencies, developing and developed governments, non-government organizations (NGOs) and even including private banking institutions. Today, there is an estimated number of 100 micro-finance institutions that operates in different countries and serves more than 92 million clients.
Challenges of International Micro-finance
Many of the underprivileged people has benefited from the rapid increase of micro-finance, but these developments has also exposed some issues.
Funding
Micro-finance institutions encountered a lot of difficulties in continually offering loan and be sustainable at the same time due to the high delivery cost involved in micro-finance. In addition to this, a huge number of the institutions has also become more dependent to donor subsidies in order to be able to issue grants and subsidies.
Policy Environment
Although there are already some improvements in the policy environment in terms of managing the financial sector programs, there are still some countries, like Thailand, Vietnam and the maximum interest rates implemented that limits the ability of micro-finance institution in providing permanent access to an increasing segment of excluded households.
Inadequate Financial Structure
With some countries not having an adequate financial structure (e.g. legal, information and regulatory and supervisory systems), many government institutions has also failed to strengthen and ensure the sustainability of any institution or program that aims to promote the importance of the participation of the private sectors in micro-finance. Due to this, the development and integration of micro-finance with the broader financial system has also been hampered.
Inadequate Investment to Promote Agriculture and Rural Development
Even with the support of micro-finance institutions, the developing member country hasn't still managed to see the importance of having a sufficient amount of investment to physical infrastructures and creating economic opportunities for its people. Because of this, many of the private investors are also discourages to support any financial services due to the risks and cost of micro-finance.
Inadequate Investment in Social Inter-mediation

Having a low level of social development adds up to the challenges of micro-finance, as private investors are not likely to put any of their investment in social intermediation, as this will need a large amount of financial and human resources in order to solve this issue.

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