Challenges for Microfinance Organizations Serving the Poor

WHAT CHALLENGES DO MICROFINANCE ORGANISATIONS FACE IN THEIR ATTEMPTS TO SERVE THE POOR? ASSESS THE POTENTIAL BENEFITS AND DRAWBACKS OF MICROFINANCE IN IMPROVING LIVING STANDARDS. Over the last 15 years microfinance institutions (MFIs) have rapidly expanded. The number of poor families with a microloan has grown from 7.6 million in 1997 to 137.5 million in 2010. Microcredit has generated significant confidence for fast poverty alleviation; creating a multiplier effect leading to the eradication of poverty and hunger, universal primary education, the promotion of gender equality and empowerment of women in developing nations. It can be argued that microcredit is a â€Å"win-win† opportunity, in which the poor are given the financial capital and†¦show more content†¦Within the villages of Bangladesh, weekly meetings occur with a loan officer from an MFI, who records the weekly instalments on outstanding loans, saving deposits and fees. The loan office also offers advice, sorts out discrepancies and makes arrangements for customers to obtain new loans from the local branch office. All of these meetings occur in public, thus making the process more transparent as it lets the villagers know who among them is moving forward and who may be running into difficulties (Armendariz Morduch, 2010 p.98). However, joint liability has its disadvantages as it can bring costs to the borrowers such as low flexibility, the loss of social capital for defaults beyond a person’s control and peer pressure to undertake excessively risk-adverse activities (Todaro Smith, 2011). Group lending ignores the fact that group members must spend time to assess each other projects along with the fact that group members may live far-off from each other (Hermes Lensink, 2007). 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