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Extended Project - Microcredit

Extracts from this document...

Introduction

Project Proposal Form Section One Topic Proposed title, responsibilities and format Microcredit . "What is microcredit?, and is the concept economically and ethically viable? " The aim of this dissertation is to provide an in depth analysis of the ethical and economical issues that arise from the concept of microcredit; discussing both the positive and negative aspects of the scheme, enabling me to develop a understanding of the concept, as well as the arguments for and against it. I also intend to pose questions about the ethics of the microcredit model, and the sustainability and viability of the model. The project will be a 6,500 word dissertation examining the above topic utilising the following arrangement: * Project Proposal Form * Abstract * Introduction * Literature Review * Discussion * Conclusion * Bibliography Section Two Rationale After reading an article in 2006 regarding Muhammad Yunus winning the Nobel Peace Prize for his efforts to create economic and social development with his application of microcredit, I was immediately captivated. The article introduced the concept as being the extension of small time loans (microloans, which are often under 100$) to impoverished entrepreneurs and people wishing to become self sufficient. What amazed me was the fact that the poorest people with the most deprived backgrounds had such high repayment rates on these micro loans, ranging from 95-98.5% [1]. Whereas the repayment rates of subprime loans (loans which are lent to those who are considered to be "unbankable" due to the lack of collateral and full time employment in developed countries) have much smaller repayment rates. These loans have contributed to the current economic climate, and have been blamed as the predominant cause of the banking crisis by various economists. Furthermore, the time scale of these microloans and subprime are often very similar, with microloans often having the higher interest rate. The impact of these very small-scale micro loans, on deprived individuals, or families has often improved the lives of the beneficiary by increasing their incomes substantially. ...read more.

Middle

Was the way one client of microcredit put it. Microcredit banks often see the only collateral that their clients possess is the people themselves. They can rely on peer pressure, which can lead to abuse, in order to secure their loans. They are often accused of not considering peoples' situations, and taking money no matter what the state of the client is. It is also argued that the microcredit model is unsustainable, and relies on government subsidies to continue functioning effectively, as well as being reliant on donations. According to certain critics like Elisabeth Hofmann, "The profits generated are then insufficient for them to step over the poverty line in any sustainable way" [14] [1] NobelPrize.org. Primary source with reliable information which is credible. [2] Yearofmicrocredit.org. Primary source with reliable information which is credible. [3] Banker to the poor - Muhammad Yunus. Secondary source which contains bias but is credible with a good reputation. [4] Credit delivery system. Grameen Communications . Primary source of evidence with reliable factual information, but contains vested interest and can be bias. [5] Grameen Bank At a Glance. Grameen Communications. Primary source of evidence with reliable factual information, but contains vested interest and can be bias. [6] Hedwige Peemans-Poullet interview. Secondary source of evidence containing heavy bias. [7] Microcredit, microresults by Gina Neff. Secondary source of evidence contain heavy bias and vested interests. [8] Understanding and Dealing with High Interest Rates on Microcredit - A Note to Policy Makers in the Asia and Pacific Region by Fernando, Nimal A. Neutral viewpoint containing little bias and with no vested interests. Reliable and credible [9] Banker to the Poor - Muhammad Yunus. Secondary source which contains bias but is credible with a good reputation. [10] Korshed Alom, on an interview for France 24. Primary piece of evidence containing vested interests and bias. [11] The Goldin Institute - Microcredit resources. Primary source of evidence with no vested interests, neutrality and no bias and reliable figures. ...read more.

Conclusion

These simple and straightforward proposals come out of direct lived experience with what does and does not work for microcredit borrowers themselves. I feel that the allegations on the morals of its method do have a base, but only from isolated incidences. I do feel, however, that MFIs should be more selective when recruiting staff, to make sure they are capable of doing the job effectively, and without abusing or threatening the clients. In conclusion, microcredit is currently economically and ethically viable, but still can be improved. But as Muhammad Yunus said, "Micro-credit may not be a cure-all, but it is a force for change, not only economic and personal, but also social and political" and I truly believe it can one day be a vital tool in poverty alleviation. I also feel that it would be used most effectively with other aid programs, as alone it will not fight poverty. Glossary of Key Words Microcredit - Extension of small time loans to impoverished entrepreneurs and individuals who aspire to being self sufficient through self-employment. Microloans - The extension of fairly small amount of money as a loan, often under 100$, from a microcredit institution to an entrepreneur. NGO - Nongovernmental organisation often formed of volunteers and non profit groups. Collateral - A guarantee or financial security, usually involving an asset which can be repossessed by the loan lender if the client is unable to pay. Entrepreneur - Someone who is willing and aspires to assume the responsibility, risk and rewards of starting and operating a business. Self Employment - Working for oneself, or acting as an independent contractor. Interest Rates - The percentage of a loan charged to a borrower on top of the loan itself. Often paid weekly or monthly, along with loan instalments Sustainable - Capable of being able to exist or maintain. Loan - Temporary provision of a sum of money, usually at interest, which must be repaid by borrower as the contract states. Microfinance: The Supply of loans, savings, and other basic financial services to the poor. ...read more.

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