UWC Grade 5 (2009-2010)

Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers."[1] Those who promote microfinance generally believe that such access will help poor people out of poverty

Traditionally, banks have not provided financial services, such as loans, to clients with little or no cash income. Banks incur substantial costs to manage a client account, regardless of how small the sums of money involved. For example, the total profit for a bank from delivering 100 loans worth $1,000 each will not differ greatly from the revenue that results from delivering one loan of $100,000. But the fixed cost of processing loans of any size is considerable as assessment of potential borrowers, their repayment prospects and security; administration of outstanding loans, collecting from delinquent borrowers, etc., has to be done in all cases. There is a break-even point in providing loans or deposits below which banks lose money on each transaction they make. Poor people usually fall below that breakeven point. In addition, most poor people have few assets that can be secured by a bank as collateral. As documented extensively by Hernando de Soto and others, even if they happen to own land in the developing world, they may not have effective title to it.[2] This means that the bank will have little recourse against defaulting borrowers. Seen from a broader perspective, the development of a healthy national financial system has long been viewed as a catalyst for the broader goal of national economic development (see for example Alexander Gerschenkron, Paul Rosenstein-Rodan, Joseph Schumpeter, Anne Krueger ). However, the efforts of national planners and experts to develop financial services for most people have often failed in developing countries, for reasons summarized well by Adams, Graham & Von Pischke in their classic analysis 'Undermining Rural Development with Cheap Credit'.[3] Because of these difficulties, when poor people borrow they often rely on relatives or a local moneylender, whose interest rates can be very high. An analysis of 28 studies of informal moneylending rates in 14 countries in Asia, Latin America and Africa concluded that 76% of moneylender rates exceed 10% per month, including 22% that exceeded 100% per month. Moneylenders usually charge higher rates to poorer borrowers than to less poor ones.[4] While moneylenders are often demonized and accused of usury, their services are convenient and fast, and they can be very flexible when borrowers run into problems. Hopes of quickly putting them out of business have proven unrealistic, even in places where microfinance institutions are active.[citation needed] Over the past centuries practical visionaries, from the Franciscan monks who founded the community-oriented pawnshops of the 15th century, to the founders of the European credit union movement in the 19th century (such as Friedrich Wilhelm Raiffeisen) and the founders of the microcredit movement in the 1970s (such as Muhammad Yunus) have tested practices and built institutions designed to bring the kinds of opportunities and risk-management tools that financial services can provide to the doorsteps of poor people.[5] While the success of the Grameen Bank (which now serves over 7 million poor Bangladeshi women) has inspired the world, it has proved difficult to replicate this success. In nations with lower population densities, meeting the operating costs of a retail branch by serving nearby customers has proven considerably more challenging. Hans Dieter Seibel, board member of the European Microfinance Platform, is in favour of the group model. This particular model (used by many Microfinance institutions) makes financial sense, he says, because it reduces transaction costs. Microfinance programmes also need to be based on local funds. Local Roots Although much progress has been made, the problem has not been solved yet, and the overwhelming majority of people who earn less than $1 a day, especially in the rural areas, continue to have no practical access to formal sector finance. Microfinance has been growing rapidly with $25 billion currently at work in microfinance loans.[6] It is estimated that the industry needs $250 billion to get capital to all the poor people who need it.[6] The industry has been growing rapidly, and concerns have arisen that the rate of capital flowing into microfinance is a potential risk unless managed well.[7]

Poverty in Asia,caste and progress. In this FAO Poverty In Asia map, Darker is Poorer but some light areas are just 'no data' - see our Poor in a Rich World page.A majority of the worlds poorest people today are in Asia - partly because it holds a majority of the world's population. Of course some Asian countries like Japan and South Korea are not as poor as others like India and Cambodia, with Asian poverty being concentrated in South Asia.  Asian poverty1. Poverty in some Asian countries is largely due to the pressure of population growth on scarce resources and inadequate governments allowing strongly negative caste discrimination. 2. Education, medicine, clean water and sanitation are often inadequate also3. In some Asian countries land ownership being problematic also encourages poverty. 4. Asia till recently attracted less foreign investment than Latin America, but more of it has been stable longer-term European investment. Some of Asia has shown good progress on poverty in recent years, like China and South Korea. (in China noteably helped partly by controls on population growth)  But Asia, holding the largest populations, still has many extreme poor. The current world recession is also causing family remittances from overseas workers or migrant workers to fall. As more migrant workers lose jobs in Western Europe and the USA, remittances to their poor families in Central Asia are being hit hard. And the likely prospect for aid in the short term is a sharp fall.

# The new green selected food crops have been helping in reducing poverty in Asia, but the newer genetically modified food crops and their monopoly providers seem to have been unhelpful to date ? See South Asia Land Management  - SACEP pdf 1.5 mb # For one small charity trying to do some good extreme-poverty work in India today, see SEED at seedkolkata.org or for another similar good small extreme-poverty charity working in Cambodia, see the Sao Sara Foundation at ssfcambodia.org Good small charities like these often lack the money they need to do as much as they would like. # For facts about individual countries, see NationMaster