Decision Making and Control in Microcredit Sector
These days, microcredit is a financial improvement which adopted by various countries from Grameen Bank in Bangladesh. Since the country has been successfully implemented the modern credit system in order to help poor communities to put up their own small businesses that would generate income, and eventually, paved the way to the success of the micro-financed businesses that have built wealth and freed the people from poverty. Microcredit is a part of microfinance, which has the terms of giving a wider range of financial services to the very poor borrowers. From then on, microcredit rapidly became an accepted financial tool for economic development, along with hundreds of financial institutions rising throughout the third world countries. The Grameen Bank was later became a corporate entity and was renamed Grameen II in 2002. In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for his work of providing microcredit services to the poor people. Microcredit system reached Latin America with the launching of PRODEM in Bolivia in year 1986; a bank that later transformed into profit banking. Apparently, the tremendous success of microcredit opened the traditional banking sector started to accommodate many microcredit borrowers to gain credibility in the finance industry. As a matter of fact, the United Nations declared 2005 the International Year of Microcredit.
(http://en.wikipedia.org/wiki/Microcredit)
The principles used for decision makings and control in credit sector were created by joint effort of non-profit organizations, government or private subsidies. During 1980s, the credit systems were influenced by neoliberalism and spread the Harvard Institute for International Development’s ideology among microcredit organizations in the world. Furthermore, the commercialization of microcredit system began with the structure of Unit Desa (BRI-UD) in the Bank Rakyat Indonesia in 1984. This bank offered microfinance credits to low-income people based in the market interest rates. Today, majority of microcredit institutions are functioning as independent banks that offer high interest rates and give great emphasis on savings program of their borrowers.
(http://en.wikipedia.org/wiki/Microcredit)
Seemingly, the purpose of neoliberal economics to microcredit sector has gone many criticisms from various sectors of the society such as scholars and some development practitioners, claiming that microcredit bank directors, such as Muhammad Yunus, are employing the practices of a loan shark for their own personal interests. There was once an incident featured on the Wall-Street Journal involving a Mexican microcredit institution clarified the limitations of profit-driven microcredit institutions. Accordingly, microcredit sector must build trust which helps micro-credit business to create job opportunities for the people during financial crisis. Microcredit system has been providing group lending, lending opportunities to women. It has been an obvious fact that most microcredit institutions are comprised of women borrowers. Women are continuously made up seventy-five percent of all microcredit recipients from all parts of the globe.
(http://en.wikipedia.org/wiki/Microcredit)
Additionally, for many years, microfinance sector has shown its strength by gaining several recognitions and awards for being efficient and effective financial sector in the economy that elevating and uplifting the condition of many poor families through low-cost financial services. Another modern feature that microcredit provides to its clients is its multiple Internet-based systems that have been developed recently in order to facilitate new peer-to-peer-lending web credit platforms worldwide. In addition to that, microcredit system has also penetrated United States of America, the richest countries of the world. However, according to Jonathan Morduch of New York University, Americans have less likely to avail microloans in the US, for thinking that borrowing money from private micro finance enterprise is not a solution to escape from poverty. As a result, Bank of America has declared to award over .7 million to nonprofits institution to finance the microloan programs in the country. (http://en.wikipedia.org/wiki/Microcredit)
Most microloans are awarded to women, and in order to ensure the empowerment of women worldwide through microcredit system, various improvements are being done to achieve an even distribution of microcredit loans to women worldwide. Obviously, microcredit institutions are exclusively employed female employees; this is a major reason for some debates on the participation of male in the lending process in order to lessen the gender antagonism in the microcredit services. Many suggestions from scholars and other business professionals for the integration of additional financial services such as voluntary savings facilities, non-productive loan facilities, insurance enterprise development, production-oriented and management training, marketing support and welfare-related services, as well as educational and health services, so as gender and social awareness training must be all provided by the microcredit sectors. By doing this, many people all though out the world should initiate a program for these added financial services to pave the way for the economic opportunity among the poor people from third-world countries.
(http://generoyambiente.com/arcangel2/documentos/376.pdf)
References:
(http://en.wikipedia.org/wiki/Microcredit)
(http://generoyambiente.com/arcangel2/documentos/376.pdf)
(http://www.microfinance.lu/comas/media/37_swain_an.pdf)
Credit:ivythesis.typepad.com
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