By their very nature—and their obligation to stockholders—these publicly-traded firms work against the original mission of microfinance, helping the poor above all else. In response, Compartamos and other for-profit microfinanciers counter that commercialization allows them to operate more efficiently, and to attract more capital by appealing to profit-seeking investors.
By becoming a profitable business, their argument goes, a microfinance bank is able to extend its reach, providing more money and more loans to low-income applicants.
For now, though, charitable and commercialized microfinanciers do co-exist. In addition to the divide between the nonprofit and for-profit microfinance enterprises, other criticisms exist. A better approach, these critics maintain, is to create jobs by constructing new factories and producing new goods. They cite the examples of China and India, where the development of large industries has led to stable employment and higher wages, which in turn has helped millions to emerge from the lowest levels of poverty.
Other critics have said that the presence of interest payments, however low, is still a burden. Despite the healthy repayment rates, there still are borrowers who cannot, or do not, repay loans, because of the failure of their ventures, personal catastrophe, or other reasons.
So, this added debt can make recipients of microcredit even poorer than when they started. Additionally, the IFC has helped establish or improve credit reporting bureaus in 30 developing nations. Also, many major financial institutions and other large corporations have launched for-profit microfinance departments raising concerns that, out of a desire to make money, these larger bankers will charge higher interest rates that may create a debt trap for low-income borrowers.
Additionally, some have argued that individual microloans are not enough money to provide a realistic path to independence. Finally, critics have said that the presence of interest payments, however low, is still a burden. Small Business. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads.
Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Personal Finance Banking. Table of Contents Expand. What Is Microfinance?
Understanding Microfinance. Microfinance Loan Terms. History of Microfinance. Benefits of Microfinance. The For-Profit Controversy.
Concerns about For-Profit Microfinancing. Nonprofit vs. For-Profit Microfinance. What Are the Benefits of Microfinance? Hence an institution must take into consideration all the facts and make a wise decision. Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials.
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Get an Expert. Was this article helpful? For your reading convenience, we have listed the steps to starting a microfinance company courtesy of that article: Once you're ready to start your micro-lending company, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows: Plan your business.
A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your micro-lending company is ever sued. Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business. Open a business bank account. A dedicated checking account for your micro-lending company keeps your finances organized and makes your business appear more professional to your customers.
Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down. Get business insurance. Insurance is highly recommended for all business owners.
If you hire employees, worker's compensation insurance may be a legal requirement in your state. Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors. Establish a web presence.
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