countries, the five main objectives of European micro-finance are job creation,
promoting micro-enterprises, financial and social inclusion, and empowerment of
specific target groups. Micro-finances in developed countries have loan
ceilings which above those amounts, there is the option of co-financing.
scholars have pointed out, credit alone can’t bring development. It is a
combination of things that bring about development.
Micro-finances mainly in developing countries are largely concerned with
scaling their businesses and pay less concern to their impact in the society.
Some scholars and researchers in the field argue that the reason they rarely
concern themselves with the impact is because they want to avoid the costs
associated with social welfare.
Data from the
Kenya FinAccess Household Survey 2019
financial inclusion has risen to 82.9 percent, up from 26.7 percent in 2006,
while complete exclusion has narrowed to 11.0 percent from 41.3 percent in
2006. Furthermore, the disparities in financial access between rich and poor,
men and women, and rural and urban areas have also declined remarkably. Key drivers
of these changes include: the growth of mobile money, government initiatives
and support, and developments in information and communications technology
Micro-finance is often cited as essential in helping women in particular to rise from poverty and provide their families with safety nets in finances and advance education levels. However, despite this optimistic outlook, most credit to women finds its way to pay for emergencies, hospital bills etc, and therefore does not go towards boosting their businesses. The long term effect of this is that while the micro-finances have high repayment rates, the people/ communities remain in places of poverty and insecurity in incomes.
of micro-finance as pointed out by Casey Hynes, include borrowers being
high-risk borrowers. Traditional banking always assesses a customer’s risk and
determines if they can repay their loans in full with minimum costs employed
towards recovery. With the microfinance customers not qualifying for the
traditional banking loans, microfinances offer a solution to this. However,
high risk dictates high interest rates. High interest rates on relatively small
loans then put the borrower at a disadvantage.
need to work on longer time scales to help their customers as opposed to
focusing on quick scalability and cost-efficiency. Scalability focus limits the
time they allow for substantial economic change to take place. They should
therefore give due time and employ resources to helping customers become more
financial literate and stable, while putting into consideration the cultural
factors that have inhibited growth and how to enhance growth.
As Casey Hynes
notes, -Credit is not equal to impact, but credit is an enabler to impact.
should therefore help their borrowers establish their credit worthiness,
develop their business and financial skills, as well as understand how to use
the traditional banking products to their advantage. This can be achieved
through literacy kiosks which are set up to teach the borrowers on financial
products. Most borrowers are also not literate, which can be countered by use
of voice activated services for those who cannot read financial material.
financing therefore requires a long view if it is to achieve lasting change in
the developing countries.