According to the latest information, investments in microfinance institutions have a tendency to increase. There are two opportunities for investors: first is a direct investment in a microfinance investment vehicle and the other is indirect investment via a fund-of-funds.
It is important that investments are done in local currency because it helps to support the growth of the industry.
Speaking regarding the microcredit effects on the economic development, we must remember, that to single out just microcredit is a one-sided view. Other services indeed influence the economic situation too.
Microcredit promises to help recipiÂ¬ents achieve economic self-sufficiency and break cycles of poverty by proÂ¬viding cash infusions necessary to purchase productive assets.
The microcredit issue is very controversial, because financial policy’s instrument has a list of pros and contras. While we share the belief that access to credit is a human rights issue, we also suggest that its delivery has become a human rights concern. If microcredit is to play a constructive role in breaking cycles of poverty in rural areas, it must be rethought with and from the perspective of recipients and communities.
In contemporary microcredit, “sustainÂ¬ability” has come to refer to the finanÂ¬cial viability of MFIs. If microcredit is to contribute to poverty alleviation, donors and practitioners must:
”¢ Reevaluate metrics for success
”¢ Ensure that other critical services (such as health care, food security programs, and schools) are in place in communiÂ¬ties where MFIs operate
”¢ Engage in sustained dialogues and build partnerships with communities to better address the needs of recipients.
These are critical first steps in moving beyond the idea that market-oriented policies help in poverty’s reduction and provide the positive change in social life. It’s not only microcredit organizations should change their measurement of efficiency (such measurements as interest percentage), the elimination of poverty also depends on correct social state policies.
Advantages of microcredit:
In 2011 a new study (Microcredit Summit Campaign) has stated that microcredit has helped 1.8 million Bangladeshi households to escape from the poverty. Among the advantages of microcredit programs are following could be mentioned: Microcredit provides a high level of investments return;
1. Microcredit is a part of poverty problem solution and additional help to poor people is a victory in any case, no matter what the other factors are;
2. The freedom that gives self-employment assures that workers will be more confident in their future and are likely to take the initiatives.
3. Economic diversity is a positive factor as well and studies show that diverse economy has better long-term prospects.
Disadvantages and possible risk of microcredit
1. Many borrowers don’t use microcredit solely for business purposes.
2. Microfinance is dangerous without education
3. Microcredit might be helpful just when interest rates are relatively low. Unfortunately, financial organizations sometimes can’t determine the line between constructive microfinance and exploitative money lending.
4. The markets for production that was increased in a result of microloans are demanded by farmers.
5. Microloans can’t cure poverty, only stable jobs can. Some experts are confident that in order of helping the poor people, investments in microfinance should be stopped and on the opposite, industries with large scale of employed labour should be started. Besides, other sources confirm that Microloans do not significantly decrease poverty and in some cases microcredit can make a life of the poorest even worse.
6. Multiple loans and big sums of debt have emerged as the important problem. There are also cases of coercive collection practices managed by microfinance staff, and series of suicides of lenders that couldn’t meet their payments.