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What’s Wrong with Micro-Finance?: A Book Report

Edited by Thomas Dichter and Malcolm Harper
The idea of microfinance has been in existence for about six decades even before the ideology of development could be thought off.  Microcredit first kicked off momentum after the 1997 Microcredit Summit in Washington, D.C. and the concept reached its peak in 2005 and 2006. The United Nations declared 2005 as the year of Microcredit and the micro finance scheme became well known in 1983 when Mohamed Yunus and the Grameen Bank won the Nobel Peace Prize. This led to a change in the perception how microcredit is been viewed and conceptualize by the world; that is, the poor were now seeing as major entrepreneurs, who have the needed skills and expertise in business, but needed financial resources to initiate and jump start their own businesses. At the core of the micro-finance ventures, the poor are considered people who when provided with the right financial resources are able to removed themselves from the cradles of poverty.
The purpose of the book "What's Wrong with Microfinance?" is aim at policy makers, politicians and money philanthropists who have enthusiasts in the view that microfinance is one of the effective means of eliminating poverty in the world’s poorest regions. Another goal of the book is to re-examine the microfinance revolution and see how to delimit the growing expectations that are currently clouding the minds of development practitioners and those benefiting from the micro-finance scheme. It contains articles written by 22 authors in diverse fields related to microfinance and whose combined professional experiences account to about 300 years of specialty in microcredit and micro-finance.
The editors and authors talked about the issue of over-inflated expectations that are clouding the microfinance arena and how that has to be systematically addressed to be able to meet the needs of those who would benefit from such scheme. If these over-inflated assumptions are not addressed appropriately, this may likely result in more harm than good. The evolution of microfinance was a gradual and systematic process that evolved over time starting in the 1950s through the early 1970s. Development endeavors during this stage focused specifically bridging the gaps between the developed and the developing world by focusing on the issues of replication and imitation by developing countries based on the successes and weaknesses of the developed countries. As such, the introduction of direct aid in development agenda shifted the need to reconsider how development apparatus function and thus give birth to the introduction of ‘micro enterprises.’ In the 1970s, the progress of supplying capital to small-scale business entrepreneurs prepared the foundation upon which microfinance emerged. The term “informed sector” coined by Hans Singer in the International Labour Organization’s report in 1972 paved the way in the 1980s for the progressive, rapid growth and development of the microfinance scheme in the development agenda.
This led to a development paradigm shift in the target audience of funding for micro-finance ventures, because poor people were willing to engage in productive projects with funding they received. At a meeting in Washington, D.C. in 1988, it was suggested and debated that Non-Governmental Organizations (NGOs) considering their scope of operation and proximity to the targeted population were best fit for initiating funding for poor communities to engage in microfinance ventures than the banks and governments because they claimed that these banks and international financial institutions could not reach the poor people effectively and efficiently. As a result of this process, a new financial atmosphere emerged and developed, which led to the establishment of the Microfinance Institutions (MFIs) responsible for coordinating the processes of getting funding opportunities for poor to engage in micro-business schemes. This led to the widespread establishment of diverse institutions responsible for making sure that poor people had access to financial resources.
The issues associated with why formal financial institutions such as banks did not lend money to the poor people is their inability to provide collateral and this issue became the discussion among the new leaders in the microfinance sphere. Discussions among the new microfinance institutions were centered on what could potentially replace the gaps in providing collateral by the poor in order to receive funding for their micro-projects. Several questions were raised to see how effective this new scheme could be in addressing the needs of the poor and these questions give rise to new ideologies one of which states that “women became the main clientele, because they are better repayers and they invest in their families welfare then men. This change in paradigm led to the development of several strategies that are geared towards microfinance lending to the poor and this gradually attracted the view and interest of the World Bank, which provided funding and research opportunities to engage in new approaches to enhance the delivery of micro-finance funds.
Nevertheless, as the scheme took shape on the local and global landscape, some malfunctions started to emerge in terms of its operations and efficiencies. Institutions became to be distracted from the core principles of microfinance; that is, providing financial assistance to the poor to being more business-minded and the need to become financially successful clouded their agenda and this led to the failures of the microfinance. Long on its table is the current and long debate between two relatively old schools of thoughts; that is, the issues of outreach versus sustainability on one hand and the issues of subsidizing microfinance versus commercially viable microfinance became the form. Other equally important questions surfaced in the debate relative to microfinance and that repayments rates were high, but these debates and questions did not prevent the microfinance field from expanding exponentially, receiving more growth in operators and funders.

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