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Microfinance is service offered by banks to start-up entrepreneurs and small business owners.

The study of Microfinance carries significant relevance, as the concept plays a large role in bettering the economic climate of developing nations (including the Philippines.) n some nations, commonly located within the continent of !frica, Microfinance plays a key role not by offering loans but by disbursing wages to small income workers. The end goal of Microfinance, as lauded by some, is to offer high-"uality financial services to localities where conventional means of banking may be particularly difficult to set up. The study will detail the effects of Microfinance within the conte#t of the Philippines, and other (to an e#tent) impoverished nations.

Microfinance: business owners.

a form of financial service offered to small time entrepreneurs and

The two methods of Microfinance are$ %elationship-based banking for individual customers &roup-based models patroni'ed by several customers at a time.

Purpose of Microfinance$ (anks do not traditionally offer loan or financing services to clients with little to no cash income, even more so in banks situated and operating within nations that have developing economies) the reason for this seemingly discriminative practice is that the banks re"uire a significant cost to manage an account regardless of how much cash the amount has in reality. *urthermore, as with all businesses, there is a break-even point that banks must meet before even considering e#tending their services to a potential client. Poor people generally do not meet this point, and are thus re+ected from traditional loan offerings,to further discourage the offering of traditional loaning services to the poor, they generally do not have any assets with which to serve as collateral. Microfinance e#ists to be able to offer financial services to people who are dis"ualified to receive it by conventional means.

State of Microfinance: -espite the tremendous difficulties enumerated in the preceding discussion, Microfinance is growing rapidly with a "uoted ./0 (illion currently at work. 1#perts on the field posit that Microfinance re"uires only 23 times that amount (./03 (illion) in order to provide capital to all the poor that patroni'e the trend. Competitors:

Microfinance is usually at work at rural locales where there is no formal institution to offer traditional means of banking,and even more so, the people are unable to afford of the fees of traditional banking. Those that do not patroni'e small bank loans usually patroni'e loans offered by local moneylenders or relatives with disposable income , but the danger arises when these competitors offer the loans at unfair interest rates. The estimated informal moneylending rates in !sia, 4atin !merica, and !frica are$ 567 moneylenders offer #8237 a month //7 moneylenders offer #82337 /7 moneylenders offer at different rates.

The primary reasons by which clients prefer to patroni'e informal moneylending are$ 9onvenient :ery fast (Most) 4enders are fle#ible with e#tensions

Purposes of Microfinance/Moneylending: 1vents$ weddings, funerals, birthdays, education, etc. 1mergencies (those that patroni'e small loans seldom have health insurance)

Challenges:

9alamity needs ;mall-time investment opportunities

nterest %ates$

The use of the prefi# <Micro= may be misleading, as the interest

rates by which some Microfinance platforms operate may reach an average of >0./27 inclusive of fee rates. Transactions 9ost$ Transaction costs are not fi#ed and vary in relation to the amount to be loaned. ?ften the amount is high. Purpose of loan$ ;ome Microfinance institutions offer only for the sake of productive purposes, and may re+ect loans that may only deal with the short term. %each as opposed to -epth$ 1#perts argue that the large reach by which these institutions operate may not necessarily have a measurable influence on the economic state of the area. nstitutions most seek to balance the coverage of their services with the amount of clients they are able to service and the amount of capital they are able to e#pend.

%eferences$

%obert Peck 9hristen, %ichard %osenberg @ :eena Aayadeva. *inancial institutions with a double-bottom line$ implications for the future of microfinance. 9&!P ?ccasional Paper, Auly /33B, pp. /->. *eigenberg, (en+amin) 1rica M. *ield, %ohan Pande. (uilding ;ocial 9apital Through Micro*inance. C(1% Dorking Paper Co. 2632E. %etrieved 23 March /322. Fernando de ;oto. The ?ther Path$ The nvisible %evolution in the Third Dorld. Farper @ %ow Publishers, Cew Gork, 2HEH, p. 26/. !dams, -ale D., -ouglas F. &raham @ A. -. :on Pischke (eds.). Indermining %ural -evelopment with 9heap 9redit. Destview Press, (oulder @ 4ondon, 2HEB Marguerite %obinson. The Microfinance %evolution$ ;ustainable *inance for the Poor Dorld (ank, Dashington, /332, pp. 2HH-/20.