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Microfinance Effectiveness in Solving Banking Problem

In: Business and Management

Submitted By damnra
Words 1091
Pages 5
Wilibrordus Armand Amadus
10/22/2010
Draft 3

Microfinance Effectiveness in Solving Banking Problem

Have you ever tried to borrow some money from a bank? It is actually a very simple thing to do, since one of the primary services of banking practices is lending money. When you need some money under any circumstances, you can just go to the bank, fill in the application, and talk to the loan officer about why you need the money and how you can repay it on time. In a couple days he will let you know whether you are approved for the loan or not. Although the procedure may sound effortless, getting a loan from the bank is an arduous task to do. The most typical problem is that the loan officer does not think the borrowers will be able to regularly reimburse the credit because of many circumstances. This is exactly the same problem millions of penniless people have faced around the world.
Standard banking practices consider that the underprivileged are not reliable to gain some credit. This condition creates a vicious circle of poverty: deprived people want to start businesses to get out of deprived condition; however they do not have those opportunities due to capital shortage and nobody is willing to lend the needed funds. Social entrepreneurs, people who utilize their entrepreneurial abilities to organize and manage a venture to make a social impact, have noticed this convoluted banking problem and have attempted to permanently bring the society into a better condition. They have examined the root of the problem−the poor need capital to start their businesses−and then have come up with a microfinance system to respond to poor people’s needs which cannot be fulfilled by ordinary financial practices. This innovative banking system is more effective than regular financial practices in solving a vicious circle of poverty because microfinance lends money to poor

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