Question

Explain in your own words how a firm may achieve growth through Micro-financing in 300 words.

Answer 1

First we understand what is micro finance.?

Micro finance describes the range of products ( for example- microloans,microsavings and microinsurance) offer to their clients.

It came into existence inthe year of 1970, when social entrepreneurs began lending money on a large scale to the working poor.

Basically the goal of MF was alleviation of poverty by providing microloans to the poorest of the poor ( those who are neglected by commercial banks) and a source of financial services for entrepreneurs and small businesses.

Firm can grow or may achieve growth through micro financing.

There are two main mechanisms for the delivery of financial services to such clients are-:

1. Relationship based banking for individuals, entrepreneurs and small businesses; and

2. Group based models, where several entrepreneurs come together to apply for loans and other services as a group.

Strategic Global Capital works in central and south America in countries such as Ecuador where Capital is difficult to came by strategic Global capital uses microfinance to provide financial services, helping low- income business owners, expand their business so they can grow and prosper.

Global microfinance market to grow at a CAGR of more than 15% by 2020.

Small firms are the important growth mechanisms for economic development of any nation.

Small firms get benefitted from Mafia by holding capital resources for providing benefits and financial growth opportunities to the poor, hard-working and vulnerable people.

Microfinance benefit both the lender and borrower. In another words, iy provide mutually beneficial arrangements allowing both parties to win.

Benefits for borrower:

- One of the biggest benefit to borrowers is that a microloans facilitated by a respected organization with a much lower interest rate than other loans.

-Repayment is much more manageable.

- With the borrowed money borrower invest in business and ultimately can improve his living standards.

For lenders-:

- Happiness and well being can come from helping others.

- The repayment rate is around 97% on microloans making them less risky than person to person lending.

-Most of the cases, lenders earn interest too.

-Very low chance of loan defaulting.

-Mostly women are borrower of microfinance, they are more sincerely repay the debt as compare to men.

In summary,bi would say microfinance is important because it provides resources and access to Capital to financially underserved such as those are below poverty line, unable to get loans from traditional banks.

Microfinance helps them to invest in their businesses and as a result helps in improving employment rate, increase earning power and helpful in economic growth of the country too.