Micro-credit vs. Economic Development by Minh Anh Nguyen

Tutor2u: Micro Credit and Development

minhanhnguyen1 — 2017-11-21 06:48:16 UTC

https://www.tutor2u.net/economics/blog/unit-4-macro-micro-credit-and-development

Tutor2u: savings in poor countries

hjang4 — 2017-11-21 06:49:05 UTC

https://www.tutor2u.net/economics/blog/saving-in-poor-countries

Approaches to development

minhanhnguyen1 — 2017-11-21 06:49:20 UTC

Micro-credit targets low-income individuals and entrepreneurs, to tackle irregular income flows and needs (medical bills, food prices, etc.).

By approaching economic development through micro-finance, low-income people are able to manage their assets and improve their product value, thus enabling them them to invest in health care, shelter, and education.

Invented?

minhanhnguyen1 — 2017-11-21 06:51:13 UTC

Nobel Prize in Economics and Nobel Peace Prize, Muhammad Yunus is nicknamed the “banker of the poor”. He is the inventor of microcredit through the Grameen Bank.

Exploitation

minhanhnguyen1 — 2017-11-21 06:53:32 UTC

poor people get exploited after catastrophies for sex-trafficking or drug industries, because they are desperate

Definition

hjang4 — 2017-11-21 06:54:55 UTC

Micro-credit: The provision of small loans to individuals who have no access to traditional sources.
Micro-finance: The provision of financial services, such as small loans, savings accounts, and insurance, that is geared specifically to the poor.

Savings & Investments in Developing countries

hjang4 — 2017-11-21 06:59:17 UTC

Investment requires saving of people in the bank, and it is necessary for economic growth. However, saving is difficult for the people in the developing countries. The reasons are:
1. Poverty: People in developing countries have little or no income. Since they have to use most or all of their income for their living, there are no money left for them to save.
2. Limited access to Financial Services: Even though they have sufficient money to save, people in developing countries do not have sufficient access to credible financial services where they can safely save their money. Instead of saving, they tend to "save" in another form, such as buying capital.

Types of Micro-finance

minhanhnguyen1 — 2017-11-21 07:09:59 UTC

Micro-savings: voluntary savings club by charities.
Micro-insurance: protection of low income people (living on $1-$4 per day).
Remittance management: charities managing remittance payments sent from one country to another.

Recipients of Micro-credit

hjang4 — 2017-11-21 07:10:43 UTC

The recipients of micro-credit are usually poor people in developing countries who do not have sufficient access to adequate financial system. The main goal for micro-credit is so that the people receiving it can start up very small business.
Women had a tendency to be the main recipients. This is because of the common thought that women would be more responsible of the money and is more likely to pay back the money due to their caring for their children. Also, any profit for women will directly translate into increase in education of children.

Overview

minhanhnguyen1 — 2017-11-21 07:15:40 UTC

Who really wins

minhanhnguyen1 — 2017-11-21 07:16:06 UTC

https://www.theguardian.com/global-development-professionals-network/2015/jun/10/the-microfinance-delusion-who-really-wins

Microcredit for women in Bangladesh

minhanhnguyen1 — 2017-11-23 06:17:24 UTC

In rural Bangladesh, most women are confined home. Girls are married off at 11-16 years old. There are no medical professionals in attendance at the vast majority of births.

Muhammad Yunus' Grameen Bank began making small loans: women bought seeds, chickens or a cow
-> started small businesses.

Women could now provide for their children better and they could pay for medicine.
https://www.globalcitizen.org/en/content/the-impact-of-microcredit-on-womens-lives-in-bangl/

Ability to repay

hjang4 — 2017-11-23 06:23:02 UTC

People with no or little means of repayment would not be an appropriate target for micro-credit. Inability for repayment may be caused by geographically dispersed population, severe health problems, or barter system. Micro-credit for these people would not be able to help them and has risk for long-time debt, which will affect them negatively.

Microcredit in South Africa

minhanhnguyen1 — 2017-11-23 06:23:45 UTC

After the apartheid in 1994, South Africa implemented microcredit to "bring new jobs, incomes, empowerment and dignity to the poorest black communities and townships". However, the microcredit movement has created an incredibly risky and expensive way to support the immediate consumption needs of the very poorest.

People paid microloan by selling off their household assets, borrowing from friends and family, which made debts rise and poverty worsen.
People couldn't pay the loans and unemployment was at its lowest.
https://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster

Unstable political/economical status

hjang4 — 2017-11-23 06:27:48 UTC

Unstable political/economical status include hyperinflation, absence of legal system, or civil war. These situations would hinder micro-credit from being efficient solution for the needed.

minhanhnguyen1 — 2017-11-23 06:30:43 UTC

minhanhnguyen1 — 2017-11-23 06:32:06 UTC

Mission drift

hjang4 — 2017-11-23 06:32:10 UTC

Micro-credit was originally created to serve for the poor. However, nowadays, many "micro-credit institutions" do not use micro-credit for the purpose, but they use it for profit. They impose extremely high interest rates for the poor, making it difficult for them to pay back.
Example for it, according to Hugh Sinclair, the author of , is Lift Above Poverty Organization

Why Microcredit Fails

minhanhnguyen1 — 2017-11-23 06:35:45 UTC

https://nextbillion.net/nexthought-monday-12014-the-tragic-failure-of-microcredit/

Microfinance

minhanhnguyen1 — 2017-11-23 06:36:33 UTC

minhanhnguyen1 — 2017-11-27 04:07:29 UTC

minhanhnguyen1 — 2017-11-27 04:10:36 UTC