Question

1. Use examples from your country or countries of your choice to explain the internationalization of microfinance.
2, explain the credit market dor small and microenterprises in a country with which you are familiar.
3. What is Financial Literacy in relation to microfinance? Explain with examples.
4. Explain the concept; " microfinance is the best tool to use for poverty eradication.

Answer 1

1. There are example of Grameen Bank which has done pioneering work in the microfinance world in countries such as Bangladesh. Bangladesh is a very poor country with the marginalized section having very little access to institutional credit. Here micro finance institutions had massive scope as they could disrupt the market dominated by private lenders who charged exorbitant interest rates. By entering this market and providing the bottom of the pyramid access to loans with a reasonable interest rates, the concept grew and the community developed as well. Similar success was experienced in India as well wherein several microfinance institutions have grown and are leveraging fintech to have better market segmentation and targeting

2. The credit market for small and microenterprises are dominated by public sector banks or private lenders in the Indian market. Here there is a lot of scope for disruption as microfinance institutions can enter the market and offer credit at a competitive rate which leads to financial inclusiveness and also creates an industry which can create jobs.

3. Financial literacy with regards to microfinance is very low. For example, most belive that micro finance is not profitable and very risky. On the contrary, micro finance is actually profitable provided one can do proper segmentation and efficient risk management. By offering finance at an affordable rate, the microfinance institutions can definitely disrupt this market in a major manner.

4. The statement is an apt one. Through access to microfinance, small and microenterprises which employ people at the bottom of pyramid gets access to funds to grow and expand their scale of operations. This is in turn leads to better income and reduction in poverty.