Question

How can provided small loan to people that most needed it used to address the challenge within a state or community

What is the challenge and why or why would this not be an appropriate strategy?

Answer 1

Lending small loans to people helps in many ways within a society or community. It intends that they serve the peoples who requires money, which helps in building a quality life in the community, and make them full participants in their country's social and economic development. Access to the money enabled peoples/ firms to become entrepreneurs, businesses,etc, increasing their earnings and improving their quality of life. Some advantages, disadvantages and challenges are given below:

Advantages:

1. Powerful tool to eradicate poverty.

2. Provide information and training for customers before lending

3. Helps to build a financial system for the poor and unemployed

4. Promoting socio-economic development at the community level

5. Making efficient use of the available resources for the generation of livelihood

Disadvantages:

1. Limitation on the amount that they can lend:it varies varies based from countries to countries

2. They provide loans against collateral/ no collateral and at any times thus leading to high debts

3. The interest rates are high ;

4. Limitations in servicing for customers

5.Policy implications

In my opinion, there are many challenges faced within a state or community when money is lended which effects the economy,some are in general and there are:

1. Failure of repayment with interest rate which increases the burden of peoples

2. Limited accessability of small loan to the people

3. Lending institutions have certain limitation in granting small loans.

4. Cultural factors can also be a challenge to people

5. Lack of knowledge

6. Policy implications

7. Unhealthy competitions

The biggest challenge I see is uncertainty( unpredictability) events in small loans and which is also not an appropriate strategy at all times. Small loans come from individuals, corporations, financial institutions and governments. There are offering a way to grow money supply in an economy within the state. The interest and fees from loans are a primary source of revenue for many financial institutions, it can be high or less, which needs to be paid at a future date and when they fail, It can bring very difficult situations to the people who borrowed money. For an instance, when a small business intend to start with a small loan to flourish but fails to make profit for some time, which becomes difficult to make repayments on time, creates a high burden for the business, as it increased the amount to repay due to interests.