The Impact of global recession on microfinance in Asia.(approximate Assignment

The Impact of global recession on microfinance in Asia.(approximate topic) - Assignment Example Thus, micro finance narrowly deals with the provision of small loans to low income individuals to help them start small business ventures. Microfinance does not involve large loans as poor people seldom need large loans or want to start big business ventures. Microfinance advocates believe that providing access to finance can help poor people in getting the resources to help themselves out of poverty. Poor people are usually avid savers but they save in kind rather than in cash. Jewelry, gold, animals and building materials are examples of things that they save which might not always be turned into cash easily. If they require finance, they borrow from relatives or landlords and other informal mechanisms which are often exploitative. (Micro finance, 2008) The modern microfinance mechanism is accredited to Dr. Muhammad Yunus of Bangladesh, the founder of Grameen Bank. He experimented with lending to poor women in rural areas and achieved great success due to high repayment rate and in terest rates. Although, bankers were unwilling to assume the risks and costs associated with micro lending, micro finance institutions succeeded in focusing on women and charging high interest rates that the poor were willing to pay. Although micro credit institutions have existed since the 1700’s, it wasn’t till Grameen Bank in 1983 that the approach to micro finance changed. Currently, it is considered a vital element in the eradication of poverty as it enables the poor to lift themselves out of their situation. (The history of Microfinance, 2006) The report covers the role and limitations of microfinance as well as the effect that the recession has had on this sector. It further takes Kazakhastan’s microfinance sector into account and the implications the downturn has had on it. The importance of microfinance: According to a study by Robinson (2002); 90% of the citizens in developing countries lack access to financial services from established institutions wh ether it is for credit or savings (Vincent, 2004). The impact of the financial sector on the economy and growth of the country is great and this unavailability of finance leads to the vicious poverty cycle of low investment, low productivity and thus low growth. Microfinance is a tool to empower the power, to provide them resources to invest in venture that will increase productivity and lead to economic growth. Although there are conflicting views to microfinance’s real contribution to economic growth and poverty alleviation it is a vital socio-economic tool. The importance of microfinance is that it focuses on the grass roots rather than on dev elopement from top. It focuses on the basics likes a woman getting a loan to set up a PCO and not on setting up industries; thus microfinance is within the grasp of the poor and does not require grand visions but rather baby steps. The investment of credit in an enterprise that leads to the generation of income increases economic gro wth and development. It not only leads to higher productivity but rather a higher standard of life. It expands income sources and increase aggregate demand thus has a multiplied positive effect on the economy and the lives of the poor. It is important to realize the importance of microfinance in providing income that is sustainable, the ventures that microfinance should focus on should be economically and environmentally sustainable to be successful so they help