Micro finace.....by prince bright akinola


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Micro finace.....by prince bright akinola

  1. 1. THE RELATIONSHIP BETWEEN MICROFINANCE, ENTREPRENEURSHIP ANDSUSTAINABILITY IN REDUCING POVERTY IN DEVELOPING NATIONSThe extent to which microfinance, entrepreneurship and sustainability are inter-related isdependent on the extent to which it addresses the economic development process for example.If we are looking for an action which will enable the poor to overcome their poverty, I would go forcredit invested in an income generating enterprise as working capital or for productive assetsleading to establishment of new enterprises or growth of an existing one, profit from the enterpriseprovides income and a general strengthening/A variety of financial institutions worldwide havefound way to make lending to the poor sustainable and to build on the fact that even the poor areself employed repay their loans and seek savings opportunities. The challenge is to build capacityin the financial sector drawing on lessons from international best practices in micro enterprises andrural finance.However, ensuring environmental sustainability is equally important as sustaining micro enterprisesfinancially. The Sustainable Financial Markets Facility (SFMF) recognizes the importance ofpromoting “environmentally and socially responsible lending and investment in emerging markets,thus stimulating sustainable markets and private sectors activity.The need to enhance other sustainable initiatives is also paramount thus the interrelated nature ofmicrofinance entrepreneurship and sustainable development is evident, the extent to whichmicrofinance, entrepreneurship and sustainability are interdependent in becoming increasinglyrecognized by experts in their respective fields of work associated with economic development.Over 500 million poor people around the world run profitable microfinance and often cite credit asthe primary constraint to business growth thus, credit is essential for poor entrepreneurs indeveloping countries.THE ROLE OF MICROFINANCE IN REDUCING POVERTY IN DEVELOPING COUNTRIESIn the 1990’s, while many of the NGO’s failed to reach the scale or financial sustainability. Othersled the way in demonstrating that poor people, particularly poor women are excellent borrowerswhen provide with efficient, responsive loan services at commercial rates, microfinance institutioncan provide micro loans to poor people in an efficient and financially sustainable way once thenumbers of clients reaches reasonable scale of 10,000 to 20,000 other financial services to poorpeople is an effective way to help the poor. People help themselves build income and assets,manage risk and work their way out of poverty.Loans in developing countries are made of variety of purposes, loans are made for housing and for“start up” loans for farmers can buy inputs to agricultural production like, rice seeds, fertilizer andagricultural tools but loans might also be used for a variety of non-crop activities such as dairy cowraising, cattle fattening, basket weaving and other capital machinery and wood working of coursefund may be used for a number of other activities such as crops and animal trading, clothingtrading and pottery manufacture.Credit is also issued to group consisting of a number of borrowers for collective enterprises e.g.such as irrigation pumps, building sanitary latrines, power loans, leasing markets or leasing land forco-operative farming.
  2. 2. The potential for loan uses are virtually endless, and differ between villages and countries and dueto the fact that there is no such thing as a “typical” developing country loans provide a source ofincome for diverse activities chooser specifically by the borrower, to create their own life.The fundamental framework: The policy legal and regulatory framework that allows innovativefinancial institutions to develop and operate effectively.In institution building: Exposure to and training in best practices that banks and microfinanceorganization need to expand their outreach and develop sustainable operations, long withperformance – based support for capacity building.Innovative Approaches: Leasing, lending and other products to increase access of small andmedium size enterprises to financial services.Despite the apparent benefit of microfinance in reducing poverty, an inevitable controversy exists.THE ROLE OF ENTREPRENEURSHIP IN REDUCING POVERTY IN DEVELOPING NATIONEntrepreneurship is the active process of recognizing an economic demand in an economy andsupplying the factors of production (land, labour and capital) to satisfy the demand usually togenerate a profit. High levels of poverty combined with slow economic growth in the formal sectorhave forced a large part of the developing world’s population into self-employment and informalactivities.But this is not necessarily negative, micro enterprises contribute significantly to economic growth.Social stability and equity. The sector is one of the most important vehicles through which low-income people can escape poverty with limited skills and education to compete for formal sectorjobs, these men and women find economic opportunities in micro-enterprises as business ownersand employees.In most developing countries, micro-enterprises and small scale enterprises account for themajority of firms and large share of employment. In Ecuador, for example, forms with fewer than 50employees accounted for 99 percent of firms and 55 percent of firms in 1980: in Bangladesh,enterprises with fewer than 100 workers accounted for 99 percent of enterprises and 58 percent ofemployment in 1986.Finally, it has been noted that small-medium enterprises constitute the most dynamic segment ofmany transition and developing economics. They are more innovative, faster growing and possiblymore profitable as compared to larger sized enterprises.Hence, the role of entrepreneurship in reducing poverty in developing nation is promising. It hasalready been identified the entrepreneurship is a major contributing factor to economic growth,however, entrepreneurial ability and leadership tend to be relatively lacking developing nations.Collier and Batty (pp.491/492) have identified five primary reasons for the shortage ofentrepreneurs’ nation.
  3. 3. Firstly, this includes the limited profit opportunities which exist in developing nations as a result ofinver for capita incomes and limited markets.Secondly, poorly developed capital markets make it difficult for potential entrepreneurs to borrowthe funds needed to establish new businesses and take advantage of new investmentopportunities. This ties in closely with role of micro-finance in empowering entrepreneurship.Thirdly, poorly developed infrastructures hinder the development of new commodity and resourcemarket as well as inhibiting the efficient. Operation of existing ones.Fourthly, sometimes social cultural and religious beliefs and attitudes attach little importance tomonetary gain and restrict economic and social mobility or assign very low status to entrepreneurs.Fifthly, an unfavorable economic and political climate might discourage the development ofentrepreneurial talent and initiative. It is often argued that in light of these barriers, governmentshold the key in opening doors to aspire entrepreneurs in a number of ways. Collier and Batty(pp.530 534/535). Suggest a number of policies to reduce the shortage of entrepreneurs indeveloping nation, such as the establishment of specialist educational institutions offering coursesin business management and administration and the establishment of specialist governmentagencies and departments to provide advice and assistance to local entrepreneurs about to takeup a business ventures are likely to aid the process.Additionally, tax relief, subsidies, investment allowances and other incentives may encourageentrepreneurial activities. Similarly, the provision of credit facilities to finance appropriate newbusiness ventures might help.And finally, the attempted maintenance of an economic social and political climate, which isfavourable to entrepreneurs, is essential.A final optimistic suggestion, according to economic theory implies that the income expendituremultiplier effect may also help to create chain reactor through developing economics thus helpingto break the cycle of poverty.THE ROLE OF SUSTAINABILITY IN REDUCING POVERTY IN DEVELOPING COUNTRIESThe concept of sustainability is difficult to define and its precise definition varies within differentcontexts. However regarding the development process, two primary aspects of sustainabilityemerge. Economic and environmental sustainability both tie in with the notion of sustainable micro-entrepreneurship, economic sustainability refers to a continual supply of finance to meet a person oncommunity’s needs, usually in the for of secure and accessible loans from a microfinanceinstitutions and environmental is the aim to preserve environmental resources for use by futuregenerations providing financial services entails that they must be sustainable and that meanscharging interest rates that cover your costs.Microfinance institutions have convincingly demonstrated that they can become profitable andsustainable institutions while making major contributions to poverty reduction by increasing economic
  4. 4. opportunities and employment bears reference to the developing world, primarily due to the role ofthe private sector in reducing poverty such as microfinance institutions, business organizations andmultinational institutions, business organizations and multinational operations. This affects thembecause the growing public awareness of corporate governance and of environmental and socialissues is driving changes in consumers behaviour.Investment and policy or regulatory adjustments, all signs point to continued pressure on theprivate sector to demonstrate the economic growth and sustainability and compatible. In anexamination of ordinary business in developing countries, who have strategically integratedsustainability into their operations. It was noted that the evidence confirms that there arecompelling commercial reasons to take actions, despite a common consumption that sustainabilityis a luxury which emerging markets cannot afford, this economic and environmental goals may bepursued simultaneously and it is now becoming apparent that this may be in firms interests.Strategies exist to promote sustainable development in developing countries to all over the world.However, it is argued that “sustainable development will only be achieved by ensuring that theeconomic, social, cultural and environmental dimension of development be addressed in anintegrated and balance manner”. This requires breaking down institutional and mental barriersbetween different sectors of society and in forging close co-operation between the sectors ofdeveloping countries.However, there are challenges as well as opportunities in putting greater emphasis onsustainability in emerging markets. Some may argue that the business case for sustainability doesnot apply in markets where incomes are low and mostly spent on basic needs but also firms mightnot see benefits from improving businesses resisting sustainable practices, may put themselves ata long term competitive environment and consumer behaviour whereas non-sustainable operationswere in the commercial interests of firms in the past this may not be the case in the future,especially in the developing world, where efficiency and cleanliness are vital to the developmentprocessSUCCESSFUL CASE STUDIES OF MICROFINANCE, ENTREPRENEURSHIP ANDMICROFINANCE IN REDUCING POVERTY IN DEVELOPING COUNTRIESMost of the growth in the microfinance industry over the last ten years has taken place in theabsence of specific financial sector policies for microfinance. Today, about 40million low incomeentrepreneurs, mainly in the developing countries have access to microfinance for example: InBangladesh, where about one-third of the world’s estimated 30 – 40 million micro borrowers reside,the growth has come from specialized microfinance NGO’s and Grameen Bank. The mostdistinctive feature of the credit delivery system is the absence of middlemen between the creditsupplier and end user. The bank’s cumulative recovery rate is astounding 98 percent. GrameenBank has it’s own special legal structure, and does not fall under regulatory oversight of the centralbank. The bank also aims to raise health and environmental consciousness. Each of its member,must plant at least one sapling a year as part of an afforestations programmes Grameen isperhaps the only bank in the world the encourages birth control, sanitation and a cleanenvironmental as part of its lending policy (Yunus 2001).In India, despite the large size and depth of its financial system, the majority of the rural poor donot have access to formal finance and financial services. For this reason, innovative microfinance
  5. 5. initiatives pioneered by non-governmental organization strove to create links between commercialbanks, NGO’s and informal local groups to create the “SHG” bank linkage.EFFECTS OF SUSTAINABLE MICRO-ENTREPRENEURSHIP IN DEVELOPINGCOUNTRIESSmall and micro-enterprises are believed to play a significant part in economic growth and povertyalleviation in developing countries. However, there are a range of issue that arise when looking atthe support required for local of microfinance and sustainability. This paper explores the issuesassociated with the establishment and resourcing of micro-enterprise development and proposes amodel of sustainable support of enterprise development in very poor developing economics,particularly in Africa.The purpose of this paper is to identify and address the range of issues raised by the literature andempirical research in African, regarding microfinance and small business. Support, and to developa model for sustainable support of enterprise development within a particular cultural and economiccontext.Microfinance has become big business with a range models from those that operate on a strictlybusiness basis to those that come from philanthropic base. The models used grow from a range ofphilosophical and cultural perspectives. Entrepreneurship training is provided around the world.Success is often measured by the number involved and the repayment rates, which are very high,largely because of lending models used. This paper will explore the range of options available andpropose a model that can be implemented and evaluated rapidly changing developing economics.A number of key elements in the development of entrepreneurs in poor countries are exploitedincluding: Impact of microfinance sustainable models of microfinance education and trainingcapacity building support mechanisms impact on poverty, families and the local economy survivalentrepreneurship versus growth entrepreneurship. Transitions to the formal sector.RESULTS AND IMPLICATIONSThe result of this study is the development of a model for providing intellectual and financialresources of micro-entrepreneurs poor developing countries in a sustainable way. The modelprovides a base for ongoing research into the process of entrepreneurial growth in Africandeveloping economics.The research raises a number of issues regarding sustainability including the nature of the donor /recipient relationship, access of affordable resources, the impact of individual entrepreneurialactivity on the local economy and the need of ongoing research to understand the whole processand the its impact, intended and unintended.CONCLUSIONThe economic benefits of sustainable micro-entrepreneurship in developing countries arecompelling and its potential effects on the development process are equally promising. In terms ofdevelopment and social impact.The microfinance industry allows significant improvements in quality of life for the micro-
  6. 6. entrepreneurs of developing countries around the world. They can now stabilize the cash flow oftheir economic activity. Bringing security to the enterprises, this allow them to better managespending which often generates savings and this provides better standards of living to their familyand dependents interiors of housing nutrition, health and education. Finally an access to bankingand increased security promotes essence of entrepreneurship and thus self-esteemed andreputation increase. The initial small loan of usually less than $100 can eventually reintegrate theseentrepreneurs into formal networks of the economy and foster the standard and sustainabledevelopment of local communities. Furthermore, estimates indicates that today, only 50% of themicro-credit demand is fulfilled, thus the microfinance industry is expected to grow significantly incoming years.Despite several challenges ahead this emerging industry and the process of sustainable micro-entrepreneurship combine to offer a potential alleviation solution to the poverty crisis of the 21stcentury and into a sustainable future.Prince Bright AkinolaPresident African Youth