The Problems of Microfinance Outweigh Its Positive Impact. Discuss
Autor: Shan Lu • September 10, 2017 • Essay • 615 Words (3 Pages) • 799 Views
EAP 3 Formative Essay
September 2017
The Problems of Microfinance Outweigh its Positive Impact. Discuss.
Name: Shan Lu
Class: 1
Teacher: Stephen
Word count: 635
The Problems of Microfinance Outweigh its Positive Impact. Discuss.
Shan Lu
Microfinance, pioneered by Mohammad Yunus, is a source of providing small loan to particular people such as the poor and entrepreneurs who may lack access to banking. As Mr Yunus indicated in his autobiography, the intention and goal of microfinance are to help the world out of destitution. In the last 30 years, microfinance has spread globally, bringing perceptible effect to the world’s poverty. However, many studies and researches show that there are serious problems with conducting microfinance, particularly in rural areas. Nevertheless, this essay will attempt to demonstrate that the problems of microfinance cannot outweigh its positive impact, although it has limitations and dubious effects as an anti-poverty tool.
Countries that have large populations, like India, are more likely to run into troubles that caused by microfinance. One of the severe problems often argued is that the microfinance institutions tend to charge very high interest rates, which is too challenging for poor people to cover. For instance, politicians from a state of India called Andhra Pradesh held that India microfinance institutions should be responsible for the suicide of 57 people, in that the sky-high interest rates of 20-30% and the lenders’ high-pressure recovery practices force them to commit suicide. But most of the responders denied that the high rate of interest does cause a problem, they have a plenty of justification of this high rate. Although the microfinance banks are trying hard to decrease the lending interest rates, it seems created further problems with government and companies. Hence, some social problems, such as suicide, are traced back to the implement of microfinance for its high interest rates and also high servicing cost.
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