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Should Bankers Invest In Microfinance Applicants
The Unbiased Banker Meets the Capitalist Point of View
Ever since its institution in 1976, Microfinance has been accepted as one of the new age solutions to poverty. Throughout the world, countless numbers of people have dedicated their time and money to helping organizations distribute stimulus cash to hundreds of thousands of small business owners. But through the years, a false identity has been placed upon such distributing organizations. Many believe that as commercial industries focused on ending world poverty, this automatically implies that Microfinance Institutions are to serve all of the poor with an unbiased, and unrestricted bank account.
But the downfall of this falsely assumed power fails to address two specific problems: 1) Is this societal assumed goal even plausible to capitalistic Microfinance businesses, and 2) if not, what would the alternative be?
At the core root of this argument, what is being discussed is the issue of who to loan to: those who are profitable business people and those who are not. Some who might support that MFI’s should serve all applicants might argue that this option would be plausible since it would:’
- give opportunity to every individual willing to improve their social standing
- increase the overall cash flow within any given community, and
- better mobilize the impoverished to access foreign markets.
Unfortunately, especially considering the current economic state of the entire world, at the moment this plan of attack does not seem plausible at all. The largest reason that this course of action would be ill-advised is since loaners with relatively small amounts of stimulus money would be sacrificing precious revenue to possible hazardous business arrangements. So should the welfare of any institution be sacrificed for the sole benefit of a single business? No. So where is the line drawn?
Before answering this question, two concepts must first become evident:
- The profession of the applicants must be analyzed in order to qualify as a profitable business in order to avoid wasteful investment.
- The second is that of the graduation method. This system allows for minimal loss while also groups, or individuals, to prove themselves before being able to receive larger investment capital.
So, again the question is asked, “Is it plausible for MFI’s to assume the responsibility for loaning out money to all willing applicants who meet the loan standard?”
Strictly examining the situation from an efficiency standpoint, it would seem the best way would, in fact, be to support the more successful businesses first. While this may produce bias towards the poor, people must remember that Microfinance is purely about developing a sustainable environment for environments lacking sufficient opportunity or capital. With the increased cash flow within the community, how can say that the investment in the more successful business might help the less successful business owner?
Examining the issue from the humanitarian position, it might argued that every person should have an opportunity at improving their lifestyle. There should be no bias or deciding factor to hold back others from breaking past the poverty line and into the middle class.
Essentially, while both sides might be argued, in a capitalistic world where businesses owners are competing against the world market, the goal of achieving sustainability within a wavering community must remain the most important goal before establishing opportunity to others.
If differentiating between the initially successful and initially unsuccessful is a problem, the graduation system is the next best solution as it provides a system for MFI leaders to examine on a first hand basis, which business owners are effective, and which are not.
Questions or comments? Feel free to leave one below! Your opinion matters!