As businesses and better care for their

As Microfinance provides different services especially small loans to people who are living in poverty, It offers opportunities for those small entrepreneurs to develop their businesses and better care for their families.

Instead of relying on donation and subsidies, small entrepreneurs are able to become financially independent. And most importantly, the quality of life could be greatly improved such as sanitary conditions, health care as well as children’s education. In rural areas most of families often work in the agriculture industry and due to shortage of manpower, the children must work as well to support the family financially, however if more families do small businesses like service related field which require less work force, more children can go to school to receive education which enable them to have ability to think or to choose their future and career. (  Furthermore, the service and concept of rural banking are built. People who lives in rural areas can get in touch with and receive financial services, not limited to urban cities. Through theassistance of banking service, agriculture is not their only option but small-scale business startup. Small entrepreneurs can get loans in short period of time which encourage them to start doing small business, expanding economies of scale.

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In addition, economic growth is stimulated through more trades and transactions with booming economies.The other interesting thing is, the repayment rate of microfinance is usually higher than traditional bank. Why? Should the borrowers often qualify as very poor? The truth is, in order to minimize the default risk, a method so-called group lending is implemented. Group lending creates a joint liability that all borrowers of the group would take responsible for the repayment of each other’s loans. Although the loans are lent to individuals, the group members guarantee each other’s repayment obligations.

( If any member of the group is unable to repay or deliberately evade payment, the entire group is considered as default and lose the chance to borrow again unless there are other members who repay the loan for the defaulter. (

Moreover, In Bangladesh Sharma and Zeller (1997) indicates that women have notable better repayment rates since women use the fund more wisely and keep a better tracking than men do, which illustrate why women is the major group of targets in microfinance. (file:///C:/Users/cchen.RE-TECK/Downloads/DEspallierGuerinMersland-WD-WomenandrepaymentinMicrofinance.pdf) Nonetheless, there are some opposite arguments discussed following which make this point controversial.

Last but not least, microfinance creates a win-win scenario which can last sustainable. Both small entrepreneur and local bank benefit from microfinance, people and local banks can be self-sufficient and get away from relying on NGO’s subsidies anymore, reaching the goal proposed by Philippe, Jean, and Marc Labie (Blue Orchard Finance. Kennedy school of government ,2004.

) – “Partnership for growth rather than assistance, win-win investments rather than donations”. If the process works well between MFIs and local banks, the better collaboration would brings better service and increase efficiency as well as lower the cost of practice, resulting in more affordable interest rate (current interest rate is between 25% to 40%) and expand to more regions. (


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