AFF 604 Chapter Notes - Chapter 22: Moral Hazard, Real Interest Rate, Informal Sector
22 May 2017
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Document Summary
Microfinance: a type of banking service that is provided to unemployed or low-income individuals, or groups who otherwise have no other access to financial services. Backed my small guarantees, overcoming lack of collateral which was the main reason why commercial banks neglected the low-income segments of the population: now a standard tool in development and poverty reduction policies. Provision of financial services to poor, low-income people who, in normal conditions, would not have access to them (the unbankables). However, the sustainability goal is subordinated to providing a service to the poor: the loans are usually granted through non-profit organizations or institutions owned by the users themselves (cooperatives), although participation is also open to for-profits institutions. Amount: less than usually lent in commercial banking. Depends on borrowers" ability to sue it effectively and their ability to pay interest + return the capital in instalments. Beneficiaries: usually target people who are close to the poverty threshold, poor people and destitute people.
