The Ethics of Micro Finance

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Christopher Martin

‘Micro-finance programmes are aimed at reducing poverty.

What ethical challenges are raised by the operation of micro-finance and

which ethical theory can best be applied to assess how Grameen Bank addresses these

challenges?’

Introduction:

The essay seeks to examine the ethical issues raised by the operation of microfinance. In the first section, an overview will be offered. In the second section the ethical challenges posed by operation of micro-finance will be examined. In the third section, an overview of Grameen Bank will be given. Finally, in the fourth section, the ethical theories of Kant, Bentham and Aristotle will be applied to the ethical issues raised by the operation of Grameen Bank to see which theory best applies.

1. What is micro-finance?

Conventional banks like we in the west know are not as widespread in the developing world. Even in places where there ‘mainstream’ banks do have operations, large numbers of people will not be in a position to utilise their services. Such people have been termed the ‘unbankable poor’. The World Bank estimates that there are 2.7 billion people (nearly 40% of world’s population) who do not have access to formal financial services. Microfinance has emerged in the last few decades in response to the needs of such people for savings and loans facilities. It is an alternative to them have to use the services of what are colloquially termed ‘loan sharks’, who charge high rates so high that borrowers struggle to pay off the principal sum borrowed.

Micro-finance is the provision of savings facilities and small value loans to typically to poor people in the Third World. Such people have a need for financial services, particularly as there is a lack of in rural areas where there is a lack of banking facilities. This makes it harder to makes deposits and so build up any sort of savings. For instance 1 ”if you live in a straw hut in a village, finding a safe place to store savings is not easy.'' People need sums for

2 “life-cycle events such as births, marriages & emergency situations.” Stuart Rutherford in 'The Poor and Their Money' outlines the 3 “ Three common ways of raising large sums
i) selling assets they already own (or expect to, e.g. advance sale of crops) ii) mortgaging or 'pawning' those assets.
iii) finding a way of turning their finding a way of turning their small savings into large lump sums.

It is important to note that there is not any 'one-size fits all' definition of poverty . Muhammed Yunnus asks the rhetorical question

4 “Who on the list below is poor and who is not:
 -a jobless person,
-an illiterate person,
-a homeless person,
-a person who does not produce enough food to feed his or her family year round, -a person with a thatched house that lets in rain?-person suffering from malnutrition, -person who does not send his or her children to school?

a street vendor?

Micro-finance may increase someone's income but that may just be spent on everyday consumption and not on addressing any of the different facets of poverty on Yunnu's list. For instance, using an increase in income to send a child to school.

Savings

The very poorest may be too risk averse to take out a loan as they may have an erratic income, for instance due to crop failure. Hence the need for savings. In micro-finance schemes there are two types of savings schemes: I) Locked in: not available for withdrawal until a member a customer left the bank. Used as loan collateral The use of this method was based on the 5 “Powerful perception tha that the ‘poor cannot save.”

ii. Open-access savings which can, it is argued, 6 “generate much more net savings per client per year (and thus greater capital for the MFI) than compulsory, locked in savings schemes...and provide a useful and well used facility for clients while doing so.”

Fundamental to the repayment of...
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