MICROFINANCE IN DEVELOPING ECONOMIES Dissertation

MICROFINANCE IN DEVELOPING ECONOMIES - Dissertation Example However, microfinance units cannot be equally successful in all economies, became they all have different demographics and social structures. Despite the fact that many nations have seen success following the inclusion of microfinance units, it cannot be established that all emerging nations would experience a similar degree of success. This present paper will examine the scope of success of microfinance units in Saudi Arabia through an examination of the profitability and efficiency of operations of these financial units in the economy. In most of cases it is an inefficient financial system which is found to be the prime reason behind the failure of microfinance units, which is why it is necessary to examine the extent to which the financial system of a nation is capable of bearing such a responsibility, before arriving at any conclusion. This paper will conclude that Saudi Arabian banks are currently in a poor state to make the microfinance movement a success. However, if necessary measures are undertaken, the trend could be reversed. Chapter 1 – Introduction 1.1 Definition and Brief History Microfinance institutions are responsible for boosting the social status of a poorer section of a nation’s population by providing financial assistance. Their prime function, however, is that of microcredit, which involves forwarding loans on a cooperative basis to groups of people so that no single individual is liable. This helps to reduce their burden substantially (Feigenberg, Field & Pande, 2010). Their popularity among the poorer sections of society, which comprise a major part of developing economies, has even spurred normal commercial banks to adopt some of their strategies. Microfinance institutions might be owned by government bodies or non-governmental ones, and they might also be involved in tasks other than forwarding credit to poorer sections of society (Consultative Group to Assist the Poor, 2011). The concept of microfinance has spread across the globe from a small region in Bangladesh where Muhammad Yunus, an economics professor at the University of Chittagong, advanced nearly $30 to a group of poor villagers. An important term of this loan was that the entire group as a whole stood liable for the debt, so that the burden was divided equally among the individuals in the group. The initial loan helped the villagers to generate a continual flow of future income and, eventually, sustain their respective households. When Yunus noted the importance of such loans advanced on cooperative terms, he decided to popularise the concept across Bangladesh. Such a measure was understood as an important stepping stone towards poverty eradication. Yunus initiated the construction of Grameen Bank in 1983,