Micro-financing is one of most attention grabbing occurrence of recent years and leading progressive agenda worldwide. It gained much importance especially in under developing countries during last few decades.
The concept of micro-financing is not new but during present era, its workable explanation and successful implementation is resultant of hectic efforts of Dr. Muhammad Yunus through Grameen Bank of Bangladesh. He took far-reaching steps and successfully realized practical terms and avenues through Grameen Bank. Micro-financing as a whole deals with financial accommodation like credits, insurance, savings etc, to deprive and needy poor people having no collateral to offer as securities against even small amount of loans. Such borrowers are not entertained by formal financial institutions because of petty transaction, expensive operational cost there against and higher risks of default.
Otero (1999) defined microfinance as ―availability or access of financial services to poor having nominal income and the core poor self-employed group of people.
Ledgerwood (2000) emphases on provision of extended financial services like insurance and payment services to poor households. He stresses on building microfinance more than it commonly comprise such as saving and credit.
Micro-financing have multidimensional aspects with following major developmental goals in economy:
– Poverty reduction
– Enhanced access to financial services
– Growth of existing business
– Employment generation
– Gender Equality
– Improvement in standard of living
Most of the studies on micro-financing validate the positive impact on poverty reduction, standard of living, increased access to finance, women empowerment and economic growth. On the other hand some studies found negative relationships.
As the coin has two sides similarly nothing is perfect everything has its pros and cons. As a matter of fact lenders are interested in recovery of loans and sustainability of business. As such certain social problems arises (should be called as cons of micro-financing) that are necessitated to be highlighted and discussed.
Most of critics argued that demands like meeting deadlines and observing quotas, powerful chain of command over employees to fetch idealistic targets, working more than normal functioning hours in the field, meager compensation and lack of amenities constitute unethical pressure over recovery officers and staff leading to multiple adverse effects together with bad behaviour towards miserable poor customers. Reportedly, women clients go through threats regarding recovery ruthlessly resulting into psychological damages.
This multiplies like chain reaction that creates stress and strain for customers thus micro-financing does awful than excellent.
As most of customers are poor and illiterate, there must be a literacy program creating awareness regarding policy and complaint queries especially targeted for MFIs clients. Though there are rules and regulations in place by SBP for customer protection yet implementation checks are required to avoid imbalances
About the Author:
Aroosa Khan is MS (Business Administration) from Institute of Banking & Finance, Bahauddin Zakariya University, Multan. She has splendid record of publication in local and foreign journals and also qualified six subjects of JAIBP to obtain Certification of Professional Banker from The Institute of Bankers Pakistan.