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Microfinance - Essay Example

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The origins of microfinance can be traced as early as the 1800s when Lysander Spooner proffered the advantages of lending to small businesses to release people poor from the bondage of poverty. Contemporary microfinance began in the 1970s through the enterprising spirit of…
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Download file to see previous pages regular banks, in most cases because they are unable to offer sufficient collateral.” (Gert van Maanen, 2) There are two schools of thought regarding the entire industry of Microfinance: the first advocates non-profit lending, while the other takes the opposite view- that for-profit. In this regard, this essay is written to present arguments that profit microfinance institutions (MFIs) are better off by pursuing profits making them more sustainable than non-profit MFIs. This paper will argue that by microfinance institutions (MFIs) pursuing their own interest (profits) this is the only way to be sustainable & will lead to more outreach & more the greater good for all impoverished people despite the fact MFIs are for-profit.
Years of research indicate that for-profit MFIs are more sustainable than non-profit microfinance institutions because they have higher growth rates, access to a larger pool of funding and are much more profitable. According to Global Microfinance Forum (1), “profit-maximizing MFIs run just as normal businesses do, making enough profit to fund themselves and benefit owners and investors.” For-profit MFI’s pursue profits because they are market driven. They could rely on donor funds in their initial stages, but unlike non-profit MFI’s, they specifically stipulate that their goal is to be financially self-sufficient—the ability to rely on themselves financially from within the institution. Hence, by gaining profits they want to grow, expand the number of institutions; lower all possible costs and ultimately reach the most amounts of people possible. By relying on themselves, for-profit MFIs are sustainable.
The opportunities for profit MFIs are greater in terms of availability and accessibility for investor capital. In addition, with their own sources of funds, potentials for expanding their target market are vast. Supporters for nonprofit MFIs stipulate that these institutions solicit funds from donors, grants, government ...Download file to see next pagesRead More
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