Microfinance and Charity - Research Proposal Example

Microfinance and Charity Contents Contents 1 Introduction 1 Research Statement and Objectives 2 Literature Review 3 Analysis 6 Case Study 8 Conclusion 8 Reference 9 Introduction Microfinance is the provisions of financial services for customers who have belong to a low income group, so as to ensure that there is creation of opportunities for them to develop and grow and maintain better standard of life. The facilities of micro finance services are usually extended to customers who cannot access the traditional forms of financiers such as banking institutions and others. The charity sector is an important section of our society, and the organizations under this form of aim at addressing the various needs and demands of those who are either marginalized in society or those who are in the need of assistance. The alterations in the economic systems have had a direct effect on the financial policies that has been adopted in the society. The changes that have occurred in society today necessitate that there is an intervention in the financial and the economic system which looks into the needs of those people who are financially marginalized. This is important as the roles of the financial policies that are adopted by a society have a direct effect on the monetary conditions of the people, and it is only through the adoption and implantation of economic systems which will facilitate the transition of the people from a lower financial level to a more progressive one. In the following paper there shall be conducted a detailed discussion on the importance of ethical investment which addresses the issues of sustainable economic development, and analyze how microfinance is able to help the poor access funds, which allows for them to improve their financial conditions in the long run. Research Statement and Objectives At the beginning of every research there has be clearly defined the purpose of the study that is being conducted. This helps ensure that the research area that is being studies is clearly defined at the beginning of the study, which facilitates the development of the entire study in a progressive and well organized manner (Greenwood, J., & Jovanovic, B, 1990). Thus, the purpose of the study needs to be specified. The research that has been undertaken in the following paper looks into the role of microfinance and tries to develop a comprehensive understanding about the role that the microeconomics in the economy. At the beginning of each research there has to be ensured that the basic aims and objectives of the dissertation are identified, so as to ensure that the project that is developed, progresses in a specified direction. The main objectives that the paper aims at fulfilling have been identified and enumerated in the section below. Developing an analysis of the role of microeconomics in developing the financial conditions in the society The role of mutual funds in ensuring the financial development of the poor How microeconomics has in the modern times laying more emphasis on the development of the marginalized section of the society? Literature Review The literature review is the section where the data which will be used as the basis on which the research is developed is gathered. The works of these scholars will be accessed and utilized in the paper to ensure that the research that is developed is holistic in nature. The information will be collected from books that have been developed on the topic along with the newspaper articles and information that has been collected from the internet. It has been observed that the role that can be played by microfinance in helping the poor establish themselves in a better manner has not been as well recognized as the other social institutions such as primary education, and basic health care facilities. In fact many of the social scholars fail to take microeconomics in as a factor when looking at methods through which the millennium goals of eradication of poverty and unemployment can be achieved (Gibson, H. & Tsakalotos, E, 1994). The field of microfinance has been researched and studied extensively in the past decade or so by economists as well as financial experts, and as a result of such activities there has been observed that the literature that is now present on the topic is very vast and extensive (Flood, R., & Garber, P, 1984). In the following paper there will be conducted a detailed review on the literature that has been developed and then this will then be used as a basis on which the paper will be developed and the research questions that will be drawn will be one which looks into this literature as the basis where the topic of the role of microeconomics and mainly the role of mutual funds in the reduction of poverty in a society (Galbis, V 1977). The discussion that has been undertaken in the literature review reflects that the role of microfinance in the region is one of the most important factors that are being viewed upon by the society as a positive to ensure that the society as whole develops. It has been observed that the role that can be played by microfinance in helping the poor establish themselves in a better manner has not been as well recognized as the other social institutions such as primary education, and basic health care facilities (Giovannini: A, & de Melo, M, 1993). In fact many of the social scholars fail to take microeconomics in as a factor when looking at methods through which the millennium goals of eradication of poverty and unemployment can be achieved.               The number of rigorous studies of client outreach and impact has grown considerably, especially in the past few years, spurred in part by the development of monitoring tools like CGAP’s Poverty Assessment Tool, Cashpor Housing index, SEF’s Participatory Wealth Ranking, and USAID’s AIMS Tools. The resulting studies show that: The tools are relatively inexpensive and practical to use, and they yield useful data for both programs and donors. Average loan size is an easy indicator to collect but proves to be unreliable when measuring depth of outreach. Minimal extra effort in data collection can yield much richer information for marketing and evaluation. Microfinance institutions (MFIs) show considerable diversity in their ability to reach poor populations. Excellent financial performance does not imply excellence in outreach to poor households (Matallin, J., and Nieto, L. 2002). At the same time, reaching the poor is not at odds with maintaining excellent financial performance and professional business practices. Programs that make poverty reduction an explicit goal and make it a part of their organizational culture are far more effective at reaching poor households than those that value finance above all else.                  Professor Muhammad Yunus, who is the Nobel peace prize winner in the year of 2006, said in his speech that poverty can be best described as the alienation from man of all his human rights. He in his speech specified that the for a society to achieve stable peace it is important for the society to ensure that it eradicates poverty and establishes conditions which are supportive of growth and development. It has been observed that the problem of poverty is one which mainly affects the continents of Asia and Africa. Analysis  The institution of microeconomics has therefore been observed as one of the most important emerging institutions in the economy today, and the main objective of this form of financial institution is to ensure that the people who belong to the low income group have access to financial services which is usually consistent of providing loans to small investors who would have otherwise not be able to access funds for their projects (Atkinson, S., Baird, S., and Frye, A, 2003). The main reason for this is the fact that the traditional financial institutions fail to provide funds to such customers as banks cannot provide loans to the people who don’t have a credit history and cannot provide the traditional collateral in return of the investment that has been made. For such clients who have to borrow small amounts of money for their business ventures, loans from the bank does not seem viable, and therefore such micro borrowers before the establishment of the microfinance institutions used to borrow from the traditional lenders such as loan sharks who used to demand high interest rates on the loans that were lent to the small investors. This holds especially true in the developing countries as the amount of capital that is present in the market is considerably less. The emergence of microfinance in such markets has led to ensuring that no micro borrower falls prey to such loan sharks, and that they are able to access financial capital at a reasonable rate from the market (Barab, S., Dodge, T. Thomas, M.K., Jackson, C. & Tuzun, and H. 2007). Thus, they allow for the growth of the overall economy in a well sustained manner, where the interest of the micro investors and the poor are maintained.                       Yet, there has to be realized that the poor are not just in need of loans to ensure that they are able to grow but they also need access to other financial services which they cannot access from a normal banking institutions such as savings, health insurance, money transfer services and other such activities. The micro financial institutions thus need to ensure that they can offer all such services to the people in accordance to their needs without compromising the share of the poor (Barber, B., and Odean, T, 2001). Yet there has to be realized that the importance of the microeconomics in the economy of any economy and society is undermined by a number of factors. The most important drawback is that the role of the banks has not been undermined, but in fact most of the mutual funds in the country have been established by banks. Thus, the overall objective of the microfinance such as mutual funds is not being completed as the policies and the economic functioning of the mutual funds in the region are being controlled by the banking institutions (Lehmann, B., and Modest, D, 1987). This defeats the purpose of the mutual funds of catering to the poor classes and the marginalized sections of society as they are unable to access the services and establish accounts with them. This is one of the most important problems that is being faced by the economy of the country which has to be addressed. Case Study Mr. Yunus established the Grameen Bank in Bangladesh, which is another developing country, where almost 97 percent of the clients were women.  At the end of December 2008, the bank has disbursed USD 7,59 billion as loans11 and with 98.32% repayment rate, increased by 30bp in 2008 from 98.02%12, it proves that poor people are worthy of loans and when credit is given, they can repay their loans promptly and with interests. That high repayment rate shows the successful of Grameen Bank and many studies provide evidence that microfinance, and in particular microcredit, can contribute to the development of poor countries and improve life of those who are marginalized and underprivileged (Demirsar, M., 1998).                        It has been realized that the role of the micro financial institutions is very significant as it usually allows for the customers to borrow money even if they do not have a collateral to offer and also do not have a history of credit. The institutions allow for the investors borrow money in groups, and in fact it is has been observed that money that has been borrowed by groups have a higher rate of returns than the loans that have been loaned by individuals. This is an added advantage of the micro finances, and allows for groups to set up businesses and function through such institutions.  Conclusion In conclusion therefore it can be stated that the role of the mutual funds and microeconomics is highly significant in the economies of the globalised countries, and this is especially true in the cases of the developing and the underdeveloped nations as it is only through the establishment and implementation of such institutions that one is able to ensure that they can develop the entire section of the society. Yet the role of the mutual funds has not been as effective as had been hoped for by economists in the region of developing countries due to other economic factors that are working in the market economy. Thus, there has to be realized that the role of the micro economics in the recent years is highly significant in the country today, and it is only growing as the years go by. Reference Atkinson, S., Baird, S., and Frye, A, 2003, Do Female Mutual Funds Managers Manage Differently?, Journal of Financial Research, pp. 27-32. Barber, B., and Odean, T, 2001 Gender, Overconfidence, and Common Stock Investment, Quarterly Journal of Economics, pp. 261- 292 Barab, S., Dodge, T. Thomas, M.K., Jackson, C. & Tuzun, and H. 2007,  Our designs and the social agendas they carry. Journal of the Learning Sciences, 16(2), 263-305.  Clark G G, 2005, Unbundling the structure of Inertia, Resources versus Routine Rigidity, Academy of Management Journal, Vol 48, (5), 2005, pp 741-763 Demirsar, M., 1998, The New Egypt, Institutional Investor, Journal of Finances July, Vol. 32, No.7, p. 21 Flood, R., & Garber, P, 1984, Collapsing Exchange Rate Regimes: Some Linear Examples, Journal of International Economics, Vol. 17 Galbis, V 1977, Financial Inter-mediation and Economic Growth in Less-Developed Countries: A Theoretical Approach, Journal of Development Studies, Vol.13, No.2 Gibson, H. & Tsakalotos, E, 1994, The Scope and Limits of Financial Liberalization in Developing Countries; A Critical Survey, Journal of Development Studies, April. Giovannini: A, & de Melo, M, 1993, Government Revenue from Financial Repression, American Economic Review, Vol.  84, No. 4 Greenwood, J., & Jovanovic, B, 1990, Financial Development, Growth and Distribution of Income, Journal of Political Economy, Vol. 98, No. 5 Lehmann, B., and Modest, D, 1987, Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmarks Comparison, Journal of Finance, Vol. 42, pp. 233-265 Matallin, J., and Nieto, L. 2002, Mutual Funds as an Alternative to Direct Stock Investment, Journal of Applied Financial Economics, pp. 743-750 Muhammad Yunus 2007, Creating a world without poverty–Social business and the future of capitalism, Public Affairs, New York, 2007 Read More