Need of Microfinance in Developed Countries Sample

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MICROFINANCE: NEED IN DEVELOPED COUNTRIES - A CASE STUDY OF
UNITED KINGDOM (UK)
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ABSTRACT
Microfinance refers to the provision of banking services by poverty-concentrated
financial institutions recognized as microfinance institutions (MFIs). The key services provided
in this concern are loans, savings, pensions and insurance. With its success in developing
countries several developed countries have also attracted towards it but confronts lots of issues
in regard to its use and management.
In order to successfully complete this study some objectives were determined that help all
through the research to link with research questions. First objective is to identify why developed
countries have attracted towards microfinance and how it can help the developed countries.
Second objective is to investigate whether microfinance programmes work well in developed
countries as compare to developing countries. Third objective is to examine up to what extent
microfinance is able to resolve the common issues in developed countries such as job training,
additional education along with poverty. Forth objective is to evaluate that does microfinance is
really a good concept for increasing entrepreneurs in the world. Fifth objective is to analyse the
challenges and constraints microfinance facing in developed world.
In order to attain these objectives, the interpretivism and critical both philosophies were
used along with the qualitative research approach. This research was completed with the use of
both the primary and secondary research methods. As well, the case of UK was used along with
face to face and semi structured interview. Data analysis and findings derived on the basis of
collected data was also highlighted along with specific recommendations for UK to resolve
issues related to the use of microfinance.
According to the research findings of the study, if developed countries make use of
effective approach or program, they can significantly resolve issues related to the use of
microfinance. An analysis of individuals need and external environment along with the
development of understanding can also be very helpful for resolving underlying issues.

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TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION ................................................................................................... 5
1.1. Overview of the Study: ........................................................................................................ 5
1.2. Research and Objectives: ..................................................................................................... 6
1.3. Research Questions: ............................................................................................................. 7
1.4. Research Background: ......................................................................................................... 7
1.5. Purpose Statement:............................................................................................................... 9
1.6. The Research Problem: ........................................................................................................ 9
1.7. Scope and Limitations of the Study: .................................................................................. 10
1.7.1. Scope: .......................................................................................................................... 10
1.7.2. Limitations: ................................................................................................................. 11
1.8. Ethical Consideration: ........................................................................................................ 12
1.9. Summary: ........................................................................................................................... 12
CHAPTER 2: LITERATURE REVIEW ...................................................................................... 13
2.1. Introduction: ....................................................................................................................... 13
2.2. Conceptual Framework: ..................................................................................................... 13
2.2.1. Microfinance: .............................................................................................................. 13
2.2.2. Significance of Microfinance:..................................................................................... 14
2.2.3. Reasons that attract developed countries towards Microfinance: ............................... 14
2.3. Microfinance Programs in Developed (UK and EU) and Developing Countries: ............. 16
2.4. Significance of Microfinance in regard to resolving Common Issues of Developed
Countries: .................................................................................................................................. 23
2.5. Microfinance and Increasing Entrepreneurs in the World: ................................................ 26
2.6. Challenges Microfinance is facing in Developed World: .................................................. 30
2.7. Summary: ........................................................................................................................... 32
CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY ................................................. 33
3.1. Introduction: ....................................................................................................................... 33
3.2. Research Paradigm and Philosophy: .................................................................................. 33
3.3. Research Approach and Design: ........................................................................................ 34
3.4. Research Strategy: ............................................................................................................. 35
3.5. Data Collection Methods: .................................................................................................. 35
3.6. Sampling: ........................................................................................................................... 37

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3.7. Methods of Data Analysis:................................................................................................. 38
3.8. Reliability and Validity: ..................................................................................................... 38
3.9. Summary: ........................................................................................................................... 38
CHAPTER 4: DATAANALYSIS AND EVALUATION OF FINDINGS ................................. 39
4.1. Introduction: ....................................................................................................................... 39
4.2. Different Findings Gained through CAQDAS packages: .................................................. 39
4.2.1. To Fight with Poverty in Developed Countries: ......................................................... 40
4.2.2. To Manage Diversified Competition, Education, Job Training, and Entrepreneur
Development: ........................................................................................................................ 42
4.2.3. Problems in Funding and Managing Interest Rates: ................................................... 44
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CHAPTER 1: INTRODUCTION
1.1. Overview of the Study:
This research is undertaken with a rationale to evaluate the need of microfinance in
developed countries by taking a classic example of United Kingdom (UK). The current global
financial environment is very risky and unstable due to the continuous changes in social and
technological environment. Thus, the focal point of this study is to provide a significant
overview on the need of microfinance, mainly in the developed countries such as UK.
Chapter one (introduction) of this dissertation, explores information about the
background of research problem, which is need of microfinance in developed countries. Further,
research aims and objectives are also discussed in this chapter along with research questions to
take a grasp overview of research problem. Under the background section, researcher has
explained about the concept and its need and rationale of the problem for developed countries
with the example of UK. Additionally, researcher has also explained purpose of the study and
scope and limitations of the study.
Chapter two (Literature review) of this study is about text analysis to present a theoretical
and conceptual framework about microfinance and its use by different developing and developed
countries. Initially, in this chapter the various factors or aspects those attract developed countries
towards microfinance are discussed. Afterwards, a detailed literature is presented by analysing
different journals, articles, books, company & country reports etc. In this chapter, researcher has
also examined the extent and important of microfinance to resolve different issues related to
social, economical and organizational conditions due to poverty.
Microfinance is required to manage poverty in the countries and provide loans and
financial stability to poor people. Thus, researcher has also highlighted the advantages of
microfinance to increase entrepreneurs in the world. Additionally, in this chapter, researcher has
also discussed about various challenges those are faced by developed countries to manage
microfinance.
Next, chapter three (research methodology) of this study explains about the methodology
and its different aspects that are used by the researcher to collect relevant data and information.
In order to understand the problem and its context to collect data, researcher has defined different

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philosophies, paradigm, research strategies, etc. In this study, researcher has taken interpretivism
philosophy along with inductive approach. Researcher has also explained the reason of choosing
some specific methods and approaches instead of others. Collection of data has been
accomplished through both primary and secondary data collection methods. Researcher has used
semi structured interview and text analysis method to collect data. Sampling methods, selection
of sample size and its rationalization has also been presented in this chapter. The main aim of
this chapter is to provide justification for using a methodology and avoiding others.
help the developed countries.
 To investigate whether microfinance program work well in developed countries as
compare to developing countries.
 To examine up to what extent microfinance is able to resolve the common issues in
developed countries such as job training, additional education along with poverty.
 To evaluate is microfinance really a good concept for increasing entrepreneurs in the
world.
 To analyze the challenges and constraints microfinance facing in developed world.
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1.3. Research Questions:
Throughout above discussed objectives, researcher tries to analyse the concept of
microfinance and its importance. For attaining research objectives, some specific research
questions are designed that are as follows:
 Why developed countries have attracted towards microfinance and how microfinance
able to help the developed countries?
 Have micro enterprise programmers worked as well in the developed countries as in
developing countries?
 Microfinance is a good choice to reduce poverty but will it be to resolve the common
issues of developed countries such as additional education, job training?
 Is microfinance really a good concept of increasing entrepreneurs in the world?
 What are the challenges micro finance is facing in developed world?
1.4. Research Background:
Microfinance is one of the imperative tools for the growth in developing countries, which
is known as the small amount of loan for poor people and entrepreneurs to manage their business
effectively. This concept was given by Mohammed Yunus in 1970 in Bangladesh. The notion of
microfinance is to help poor and needy people to minimize poverty and raise their income level.
In developing countries, due to low income and poverty, it is very critical for people to access
big amount of loans and credit given by different financial institutions. In the words of Meyer
and Nagaranjan (2006), it is difficult for the developed countries to manage microfinance
activities in comparison to developing countries due to various reasons, such as high income in
developed countries, low level of poverty, high competition, tiny market for microfinance
activities, etc.
Initially, it was considered that NGO’s were interested in microfinance activities but due
to the profitable returns and increasing growth of small entrepreneurs, governments have also
shown its interest to minimize poverty and manage high returns. Additionally, financial
institutions and commercial banks have has also started to provide loans in small amount.
Kyereboah-Coleman (2007) asserted that microfinance provide different facilities of loan to poor
people, thus it is really difficult to manage these facilities in developed countries, where MNC’s

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are operating successfully, competition is very high and lots of industrial requirements with a big
capital.
According to Knight and Hossain (2009), developed countries are seeking for the
implementation of microfinance activities, such as loans and credit to help microenterprises and
promote small businesses. This in turn, encourages overall national industries towards becoming
more able to operate in present competitive and industrial environment. However, several
obstacles are there in regard to the development of microfinance in developed countries such as
UK. A poorly designed welfare system and inadequate incentives for the graduates is an obstacle
for the development of microfinance system in developed countries because highly educated or
graduates have high expectation. They always prefer white collar job with high inceptive as pr
their qualification and welfare system of Microfinance does not provide high incentives to these
people.
Apart from this, chances of development of a small business are very low in developed
countries such as UK, USA, EU, etc. in comparison to developing countries like India, China,
etc. Entrepreneurs in UK and other developed countries has to follow many procedures and pay
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high tax to start a business, thus, it is really difficult to implement microfinance activities in
developed countries.
In this study, the research background is linked with challenges and obstacles faced by
developed countries to implement microfinance. Although developed countries can also increase
per capita income of people by providing high opportunities of employment with good
remuneration, but the challenge is the high level of risk due to low level of financial literacy.
Development of commercial model is actually not real for the developed countries to manage
activities of microfinance, thus this research concentrates on the issue that whether microfinance
programs work well in developed countries as compare to developing countries. The main focus
of this study is to offer a justification about the need of microfinance in developed countries and
how these countries can manage different challenges for economical growth.
1.5. Purpose Statement:
The main purpose of this research is to examine, where microfinance is standing in this
developed world and what are the challenges faced by microfinance in order to grow itself in
developed countries. By means of this study, researcher wants to contribute towards a sufficient
and adequate piece of literature about microfinance and its significance in the wide range of
database, so that along with developing countries, developed countries can also utilize the
benefits of microfinance and manage it effectively. This research would help the business firms
and developed countries, to understand the theoretical framework of microfinance and its
challenges.
Unfortunately, due to technical development, higher education, development in social
standard, etc. have become some obstacles of developed countries to organize microfinance in
well effective way. Thus, the rationale of this study is to identify the imperative role of
microfinance in developed world, so that developed countries like UK can utilize its benefits.
1.6. The Research Problem:
In order to overcome the situation of poverty and manage income level and well being of
poor people, micro-financial activities have their own significance. The concept of microfinance
is limited with the context, which is applied only for poor people who are below poverty line and
who have not any belongings for their living and earnings. Often, this concept is implemented in
underdeveloped countries because of low educational standard, lower income level, technical

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and job training challenges, etc. On the next hand, several researchers have been analyzed a
plethora of challenges and problems related to the concept of microfinance in developed
countries.
Due to the high economy and good income level, it is considered that there is no need of
implementing principles of microfinance in developed countries. According to Srnec and
Svobodová (2009) that due to the differences in social and economic environment, need of
microfinance in developing and developed countries is quite different. It is really critical to
identify the need of microfinance in developed countries due to the well established system and
high competition. Many researchers are concerned with the issue of microfinance and its need in
the developed country to provide new opportunities to entrepreneurs. The research problem of
this study is associated with the income level and social and financial condition of individuals in
different countries.
1.7.1. Scope:
The main notion of this dissertation is to investigate whether microfinance programs
work well in developed countries as compare to developing countries. This research also
explores that how developed countries can manage common issues like, education, job training
and poverty. The scope of this dissertation is associated with different factors such as economic
and social environment, globalization, per capita income of individuals in both developed and
developing countries, conventional and modern approach of offering loans to poor people,
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commercialization of financial institution, small and big entrepreneurs, urban and rural people,
etc.
It has been also analyzed that microfinance is an important activity, for developed
countries to maintain high income status an effective growth of country and its people. As there
are numerous problems and challenges to implement microfinance in developed countries, this
study has scope for countries to find out appropriate strategies to face the challenges of
microfinance activities. This study is also beneficial for the society and poor people, as it
provides a correct direction to the developed countries to manage job training, educational and
development programs, poverty, low living standards, etc. Additionally, to improve the practices
of multinational corporations and promote small business in the country to provide employment
for poor and uneducated people are also related to this dissertation.
Finally, this research involves a substantial case study of UK, in order to understand the
significance and need of microfinance in developed country, thus it has a scope for entrepreneurs
in UK to implement microfinance programs effectively to manage poverty effectively.
1.7.2. Limitations:
There are several research methods to conduct the research in an effective way, but every
research method has its own limitations (Goddard and Melville 2004). Authentication and
reliability is one of the major limitations associated with primary and secondary data collection
method. Some of the major limitations of this research study are as follow.
Time Constraints: Time is a valuable and most important factor to conduct a research. In
order to conduct a wide and significant study, researcher has time limitation, which creates
problem for the researcher to collect wide range of articles and other data for evaluation.
Additionally, collection of data through interview is time consuming process. Due to the time
limitations, researcher has selected a small sample size; this might create discrepancy in the
reliability of outcomes (Bradley 2007). For the data analysis and presentation researcher has used
computer assisted qualitative data analysis (CAQDAS) system. This also need time to maintain
accuracy of the research outcomes.
Cost Constraint: In order to conduct a research, it is essential for the researcher to have
enough money and access to different libraries and scholarly articles for article analysis, to target
a large sample size, to collect different sources of data such as video devices, audio devices, etc.
(Cohen, Manion and Morrison 2007). In order to develop an authentic report, it is necessary to

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Additionally, this chapter also highlight objectives, aims, questions and a background of the
research problem. Researcher has also explored details of research problem with scope and
limitations, so that the aims and objectives can be achieved in effective way.
Summarily, the main idea about the microfinance in developed and developing countries
and its role and need has also discussed by the researcher under this chapter. Researcher has
provided a brief discussion that what problems and challenges are faced by developed countries
to manage the programs of microfinance. Researcher has also explored appropriate information
with adequate format and special terms to increase the impact of study on reader’s mind.
2.2. Conceptual Framework:
2.2.1. Microfinance:
Microfinance is a term that refers to the provision of banking services by poverty-
concentrated financial institutions that are known as microfinance institutions (MFIs). These
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history or unbalanced credit and lack of financial security (Vincent 2002). Now, the situation has
changed with the emergence of different microfinance institutions in UK and Europe that offer
small loans at flexible rates.
Small loans offered by different microfinance institutions help in encouraging self-
sufficiency and entrepreneurship that is essential for alleviating poverty and offering additional
education and job training. Usually people from low income class have profitable business plans
and ideas, but they does not have enough funds for starting business, getting related education
and job training that becomes easy with microfinance.
Vincent (2002) depicted that the emergence and growth of microfinance have helped
countries different individuals in initiating their ideas by getting funds and required training.
Microfinance also benefits poor people with enough capital stability, which renders them with
financial security from unexpected monetary troubles. This also directs them towards savings
that appropriate them for improved nutrition, reduced illness, better living conditions and
educational investment. All these, direct or indirect benefits of microfinance, evidences that it is
a good choice to reduce poverty and also the common issues of developed countries like
additional education, job training, financial stability etc. (Vincent 2002).
2.5. Microfinance and Increasing Entrepreneurs in the World:
The success of microfinance could also be understood in regard to its use as increasing
entrepreneurs all over the world. Usually, most of the poor people have skills and abilities to
become entrepreneur, but they not have an access to funding and this restrict them to fulfil their
dreams and potential. Emergence of microfinance has helped these people in fulfilling their
dreams and becoming successful entrepreneurs’ (Lessons from Experience: An Evaluation of
Street (UK) 2004). Microfinance help poor or low income class people with small loans that in
turn them help in starting small scale businesses and sustain their livelihood and basic needs.
Vincen (2002), describes that approx 90% of the people in developing countries are not
able to access financial services from different credit and saving financial institutions that in turn
increasing vicious phase of poverty. Similar is the case with low income class people of
developed countries as they also do not have an access to funding required for fulfilling their
needs. Poor people with low income have limited potential to invest in capital that in turn also
restricts their productivity. These people incomes are also subdued and their domestic savings
are also low that also limits their productivity (Vincen 2002).

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In the words of Kalpana (2005), small loans and other services offered through
microfinance institutions provide a way to poor entrepreneurs in regard to making use of their
skills and potential and become a successful entrepreneur. With the success of microfinance in
different developing countries, it has been proved that providing finance to poor is both
economically and socially profitable for a country and its people. From last 20 years, the
microfinance industry has developed (Kalpana 2005). Throughout 1980s and 1990s especially in
Asia, Africa, and Latin America, number of microfinance NGOs were founded that offered
microloans, with the help of different individual and group lending methodologies.
McIntosh, Janvry and Sadoulet (2005) has also supported Kalpana (2005) by depicting
that the funds and services offered through microfinance institutions can also be used by low
income class entrepreneurs for several other activities like crop and animal trading, pottery
construct, irrigation pumps, cloth related trading, building sanitary latrines, leasing markets or
leasing land for supportive farming. The scope for lending loan is endless and this also exhibits
the scope of creating entrepreneurs’ all around the world.
The potential for loan uses and development of entrepreneur are practically unending,
and vary between different countries (McIntosh, Janvry and Sadoulet 2005). According to
Vonderlack and Schreiner (2002), microfinance and related services are quite helpful as with this
number of entrepreneurs have emerged and created their own life and means of livelihood. Due
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to the increasing significance of microfinance, the World Bank Group have also employed
different strategies in regard to encouraging the potential and competence of microfinance, so
that all poor people of the world can be reached and served (Vonderlack and Schreiner 2002).
In this concern, the World Bank Group have also declared a strategy to increase access to
financial services and low-income households’, which covers three main areas that are:
 Fundamental framework: It includes the policy, legal and regulatory frameworks that
appropriate pioneering financial institutions to expand and function efficaciously.
 Institution construction: Concentrate on exposure and training in most excellent practices
that banks and microfinance organizations require for increasing their outreach and
expand sustainable procedures.
 Innovative Approaches: It includes the use of leasing, lending and several other products
to augment access of small-and medium-size enterprises to different financial services.
All these efforts of World Bank group exhibit the increasing use of microfinance in the
development of entrepreneurs’. On the contrary, Weber (2004) described that although
microfinance is helpful in decreasing poverty but this concept has also associated with
foreseeable controversy. Number of scholars and institutes has criticized microfinance due to its
underlying weaknesses and limitations in concern to decreasing poverty.
In an impact assessment related to international microfinance, it is identified that
microcredit is not an appropriate tool to help the persistently poor. In spite of this, savings can
help them to come out of crisis by reinforcing their economic security (Weber 2004). The
concept of microfinance is good but still it is not possible for microfinance institutions to reach
each and every poor all around the world. In addition to this, there are also lack of understanding
regarding the dynamics of poverty and the opportunities lying in concern to the provision of
financial services to the tremendously poor.
Williams (2011) depicts that most of the microfinance institutes invest money in different
inexpert and non-viable microfinance programmes rather than vital programs like health and
education. Health and education are the areas that need to be focussed and improved for
developing a country and its people. In addition to this, other substantial aspects limit the use of
microfinance are associated myths like poor people are awful recipients, particularly women; or
that microfinance is not lucrative.

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(Luong 2010). In addition to this, the institutions and banks should also get indulged into
different types of microfinance services like small firms loan guarantee scheme, hire purchase
companies, money lenders, pawnbrokers, cheque-cashing bureaux, mail-order firms, local shops,
micro-credit funds, community loan funds, social banks etc.
The appropriate planning and framework will definitely help developed countries and
their banks in employing effective micro finance services and related programs. Issues related to
use of microfinance could be resolved efficiently by making a plan or policy in regard to using it
(Ledgerwood and White 2006). By providing different microfinance services, the banks of the
UK will not confront failures as still there are several people in UK that have low-income and
It has been already emphasized that variety of microfinance program and related
activities can enable developed countries. Throughout survey, researcher has also evaluated that
different developed countries have different needs and perceptions about microfinance and its
use thus microfinance programs should based on the external and individuals needs (Sekaran and
Bougie 2010). As the results of the research are mainly based on one case of UK, in further
research process, it would be useful for the researcher to choose different case studies as
example.
In additional, it is also vital for the researcher to assess different factors that shape
individuals’ need in regard to microfinance like their affordability, ability to pay back etc.
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REFERENCES
Aghion, B.A., Armendáriz, B. and Morduch, J. (2007) The Economics of Microfinance. US: MIT
Press.
Akram, M. and Hussai, I. (2011) The Role of Microfinance in uplifting Income Level: A study of
District Okara – Pakistan. Interdisciplinary Journal of Contemporary Research in
Business, 2 (11), p. 83-94.
All Party Parliamentary Group on Microfinance (2011). Events and Meetings. [Online].
Available at: http://www.appg-microfinance.org/events.php [Accessed 16th August
2011]
Armendariz, B. and Morduch, J. (2010) The economics of Microfinance, 2 nd
Edition. Cambridge,
Massachusetts, London: The MIT Press.
Atherton, A. and Elsmore, P. (2007) Structuring qualitative enquiry in management and
organization research: A dialogue on the merits of using software for qualitative data
analysis. Qualitative Research in Organizations and Management, 2 (1), p. 62-77.
Basargekar, P. (2009) Economic Empowerment through microfinance. International Journal of
Business Insights and Transformation, p. 64-74.
Bateman, M. and Chang, H.J. (n.d.) The Microfinance Illusion. [Online]. Available at:
http://www.econ.cam.ac.uk/faculty/chang/pubs/Microfinance.pdf [Accessed 9th August,
2011].
Banking on the poor. (2003) International food policy research institute. [Online]. Available at:
http://www.ifpri.org/sites/default/files/pubs/pubs/ib/ib12.pdf [Accessed 9th August, 2011].
Baydas, M.M., Graham, D.H. and Valenzuel, L. (1997) Commercial Banks in Microfinance:
New Actors in the Microfinance World [Online]. Available at:
http://www.uncdf.org/mfdl/readings/CommBanks.pdf [Accessed: 11th August, 2011].
Becker, P. (2010) Investing in Microfinance: Integrating New Asset Classes into an Asset
Allocation Framework Applying Scenario Methodology. Gabler Verlag.
Blank, G. (2004) Teaching qualitative data analysis to graduate students. Social Science
Computer Review, 22 (2), p. 187-196.
Block, W.E. (2010) A Critique of Yunus and His Micro-Finance. Economics, Management, and
Financial Markets, 5 (2), p. 57-75.
Bradley, N. (2007) Marketing research: tools & technique. Britain: Oxford University Press.

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