Small loans to help the little people have beentaking off in Asia as a way to help tackle poverty in the region.
Microfinancing began when Bangladeshi economist, Muhammad Yunus started an experiment in 1974, during a famine in his home country, to give the poor small loans.
That proved immensely succesful. He managed to change the lives of more than 6.61 million people through the Grameen Bank that he founded in 1983.
Banking and financial institutions have been widening their reach to add social dimension to their regular businesses as a way to tap into the untapped cashflow and contribute to reducing income inequality.
In China: (where millions live in rural areas under poor living conditions)
- a local government initiative, the Hu Du Bi Project, allows farmers to withdraw money from their social insurance accounts as loans for investments in agriculture.
In India: (close to a quarter of people live below poverty line)
- the livelihoods of more than a million rural poor households has been supported through microcredit, savings and insurance services
The problem:
when poor people save, sometimes they have a goal, and sometimes not. It depends on whether they view it as risk management or are thinking of the savings in terms of a lump sum.
Bangladesh has been working to introduce the poor to simple banking services. This can also be applied to more affluent country like Singapore as it need to consider financial inclusion of all sections of society.

Reflections

It is evident that globalisation has tremendously widen the income gap between the rich and the poor, over the past years. The income of the richest 20 per cent in the world is 140 times the income of the poorest 20 per cent in the world today. A decade ago, the income of the richest 20 per cent used to be 70 times of that of the poor. In order to reduce this income disparities, it is important that the poor get help from the government as well as NGOs. Hence, i feel that these governments in poor countries has been on the right path of implementing policies such as microfinancing to improve the standard of livings of the poor.
The implementation of such schemes has proven to improve the lives and living standards of millions of poor.

However, macrofinancing is quite tricky as it has the potential of being a detriment to the poor as well. As discussed above, the problem lies on the mindset of the poors, whether they are saving for rainy days or for the pursuit of material goods. Moreover, like all loans and credits, it has risks involved. Without proper planning, savings can be depleted easily while loans can plummet. For example, bumper crops will incur heavy losses on these poor farmers. They will then use their savings to cover the losses. Worse still, some will borrow heavily from their social insurance. Without money to pay these loans, they will be burden by their heavy debts and this worsen their living conditions.

Hence, educating the poor in risk managements and financial planning is of utmost importance before encouraging them to join such financial schemes. Besides that, rules and regulations which will prevent farmers from incurring heavy debts should be implemented before giving them loans. Then again, rules and regulations make borrowing difficult.

Nonetheless, i agree with the implementation of microfinancing in poor countries as i believe it is one of the better ways to improve the living conditions in the rural areas. Microfinancing encourage the poor to manage their own finances and do their own businesses. This prevent them from being over-dependent on the government. It is a good policy as it helps the poor to get on their own feet and fight for their own living. Perhaps, NGOs may help by giving guidance and help the poors in their financial planning.

~Anita~

Labels: thinking aloud

22/06 Forever!
11:04 PM