Question

1. what are micro loans give few example on how they can be good and bad

2. what can be a downside to NGO's (Real life examples pass history examples

Answer 1

Dear Student,

Q-1. what are micro loans give few example on how they can be good and bad

Ans : Micro loane is a way in which loans, credit, insurance, access to savings accounts, and money transfers are provided to small business owners and entrepreneurs in the underdeveloped parts of country. The beneficiaries of micro loan are those who do not have access to these traditional financial resources.

Microfinance loans are significant as these are provided to borrowers with no collateral. The end result of microloans should be to have its recipients outgrow smaller loans and be ready for traditional bank loans.

Importance of Microfinance / Micro Loan

Almost half of the population of our country does not have a basic savings account. However, this segment requires financial services so that their aspirations such as building of assets and protection against risk can be fulfilled.

Microfinance / Micro Loan provides access to capital for individuals who are financially underserved. If microfinance institutions were not offering loans to this segment of the society, these groups would have resorted to borrowing money from friends or family members. The probability of them opting for fast cash loans or payday advances (are also high.

Microfinance / Micro Loan helps these groups invest wisely in their businesses, and hence, is in alignment with the government’s vision of financial inclusion in the country.

*How microfinance can be good and bad

1) Many believe that the path out of extreme poverty around the world is through entrepreneurship

They provides access to microloans to the very poor - Bad Point

2) Financial inclusion is at the heart of microcredit - Good Point

Therefore, they are excluded from the formal financial economy and the ability to access capital to improve their lives. Two of the major barriers to accessing financial services are a lack of formal identification and a lack of verifiable credit history

For Example

Kiva, a nonprofit focused on expanding financial access for underserved people around the world — often through microloans — has been working on the Kiva Protocol, an initiative to give unbanked people digital identity and secure control over their own credit information so that both formal and informal financial institutions (from banks to shopkeepers giving credit) can help contribute to a person’s credit history. Kiva just announced that it would be test-driving the Kiva Protocol in West Africa’s Sierra Leone in 2019.

3) Microfinance is controversial.

While lifting people out of poverty seems like a mission around which everyone can rally, the microfinance industry has seen its share of controversy. The greatest criticism originates from the idea that the financial world is making money off the poor. Microfinance used to be practiced primarily by nonprofits or NGOs, until for-profit microfinance institutions arrived on the scene. The worry is that large microfinance bankers will raise the interest rates on their microloans and push low-income borrowers deeper into debt because they can’t afford to pay back the loans

Q-2. what can be a downside to NGO's (Real life examples pass history examples

1) Funding and sustainability risks

Having constant funding and sustainability risks may be lead to close NGO

2) Applying for institutional funding

Applying for restricted funds places unwarranted pressure on the team and is cumbersome, time-consuming and often weighted towards the large NGOs simply because of the large volume of work required to complete a project proposal for which there is no guarantee of success.

3) Disruptions have a large impact on work

Any disruption, whether it be a lack of electricity, internet, staff turnover or illness has a much more severe impact to a small workforce

4) Managing limited time and resources smartly

Knowing where to place my limited time and resources. There is need for constant reflection to make sure staff energy is being used in the right way to maximise income and learning driving the organisation forward.

5) Having to do it all yourself

Not having access to peers easily to bounce ideas around, not having budgetary support in the form of finance personnel to support financial aspects of proposal/report writing.

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