A Survey on Microfinance and Its Impacts

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  • Topic: Poverty, Microfinance, Bank
  • Pages : 52 (16539 words )
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  • Published : March 18, 2013
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| | |A SURVEY ON MICROFINANCE AND ITS IMPACTS | |POSTGRADUATE EXECUTIVE DIPLOMA IN BANK MANAGEMENT | | |

POSTGRADUATE EXECUTIVE DIPLOMA IN

BANK MANAGEMENT

A SURVEY ON MICROFINANCE AND ITS IMPACTS

Table of Contents

Abstract
1.Introduction4
2.Microfinance5
2.1History of Microfinance7
2.2Microfinance; an Overview9
2.3Microfinance; Objectives10
2.3.1Poverty Alleviation10
2.3.2Women Empowerment11
2.3.3Financial Sustainability, Outreach and Impact12
3.Why Traditional Banking is Unfit for the Poor14
4.Impacts of Microfinance16
5.Case Studies16
5.1Grameen Bank of Bangladesh17
5.2The BancoSol of Bolivia20
5.3The Bank Rakyat of Indonesia (BRI)23
6.Millennium Development Goals24
7.Does microfinance hold its Promises?26
7.1The Microfinance Adversarial 26
7.2Actual Evidence 27
7.2.1Financial Sustainability and Best Practices 28
7.2.2Financial Sustainability and Poverty Reduction 30
7.2.3Why do less poor borrowers receive more income impact?31 7.2.4Assessing the trade-off 31
8.Conclusion32
9.Microfinance in Sri Lanka33
9.1Historical Overview of Microfinance in Sri Lanka34
10.The Supply of Microfinance in Sri Lanka35
11.Conclusion37
Bibliography
A SURVEY ON MICROFINANCE AND ITS IMPACTS
Abstract:
Microfinance, one of the widely accepted instruments for poverty alleviation throughout the world, has been used in Sri Lanka spanning for over several decades. Despite the long history and the large number of institutions providing microfinance services particularly to the poor, there is limited knowledge on the impact of microfinance on poverty alleviation. This study fills this gap by studying some important issues related to the microfinance sector: outreach of microfinance, role of informal sources of finance and the impact on poverty and welfare of households. This project reviews the development of microfinance and some of the main aspects of microfinance in underdeveloped countries, describing why it has succeeded in reaching the poor, while traditional banks have not, using innovative devices such as group-lending with self monitoring, short repayments installments and small loans. Well known governance problems, such as adverse selection, and strategic default are analyzed within the microfinance context, together with synergic products such as micro deposits and insurance. The high interest rates paradox is another distinctive issue of microfinance and evidence shows that subsidized credit might worsen the situation.

Microfinance services generally have a wide geographical outreach but the extent of outreach of private operators including NGOs and banks in rural areas is rather limited. Although the poor and the poorest groups have been reached by Microfinance Institutions (MFIs), a significant proportion of their clientele seems to be from the non-poor groups. Microfinance has helped households in middle quintiles to increase their income and assets; helped the very poor to increase consumption expenditure; has inculcated savings habits among the poor; has worked as an instrument of consumption smoothing among almost all income groups; and has helped women to increase their social status and improve the economic conditions. The study also finds that the informal financial market is pervasive across districts...
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