Task details- The purpose of Microfinance is to finance the livelihood, health care, housing improvements, small business creation, and other needs in underserved populations, specially poverty and...

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Microfinance
Table of Contents
A. THE HISTORY OF MICRO FINANCES AND THE REASONS FOR ESTABLISHING MICRO FINANCES:    3
History of micro finance:    3
Reasons for establishing micro finances:    4
B. REGULATION THAT SHOULD BE IMPLEMENTED TO ENSURE SOUND OVERSIGHT AND CONSUMER PROTECTION:    5
Abusive Lending and loan collection techniques:    5
Opaque and excessive loan pricing practices:    6
C. SOURCES OF MICROFINANCE INSTITUTIONS FUNDS AND WHETHER SUBSIDIES SHOULD BE GRANTED OR NOT:    7
Sources of microfinance institutions funds:    7
Whether subsidies should be granted or not:    7
D. LENDING POLICIES TO BE INTRODUCED, INCLUDING LIKELY BORROWERS, LOAN LIMITS AND INTEREST RATES:    8
E. IMPACT OF MICROFINANCE:    9
Economic impact:    9
Cultural impact:    9
Psychological impact:    10
References    11
A. THE HISTORY OF MICRO FINANCES AND THE REASONS FOR ESTABLISHING MICRO FINANCES:
History of microfinance:
In 1974, $27 was lent to a group of impoverished villagers by an economist lecturer at the University of Chittagong, Bangladesh. After thirty years of lending money to impoverished villagers, the lecturer, Muhammad Yunus was awarded Nobel Peace Prize and from that day microfinance is considered the favourite development idea in the whole world. It was seen as the silver bullet which will help in removing or reducing the poverty in the world and through which the wealth-creating force of capitalism can be spread across the globe (Banerjee et al., 2013). Microfinance not only helped in achieving financial objectives but various social objectives were also achieved such as empowering women, reaching those sections of society that were excluded, and encouraging the small group of people to control their lives themselves without depending on others.
In 1983 Muhammad Yunus founded his Grameen bank to finance small loans which would be approximately £15 at a particular time to the poor sections and less creditworthy people. Grameen bank has loaned approximately £3 billion from 1983 to a large group of people who were very poorest in Bangladesh and the Asian sub-continent, although it was completely self-financing, then also the costs were covered by deposits of borrowers.
Grameen bank had an objective of providing sustainable family incomes to slightly less poor sections in the world so that they can setup micro-enterprises to earn a living. It is relatively a slow process, as per the research conducted it was found that the bank has been able to lift only 5% of their clients out of poverty. The main reasons behind the failure were predicted as poor education, health, and natural disasters.
Now the bank is experimenting by adopting a holistic approach by providing basic medical facilities at the same place where the instalment of loan is to be paid by the customer and even they carried out certain programs to provide adult education. The bank even also tried to help the creditors of the bank to survive the disasters or any major accident that occurred.
Reasons for establishing micro finances:
Microfinance is a kind of banking service that is related to providing services to a low-income group of people or who are unemployed or any other person who does not have access to any other source of financing. Due to microfinance, many low-income group people are able to take small business loans, and that too with proper, reliable, and ethical lending practices being used (Buera, Kaboski and Shin, 2021). There were many including financial and social reasons that made it necessary to establish micro finances, some of them are listed below:
1. To provide credit access at cheaper rates to the low-income or unemployed and poor sections of society through an alternate and reliable and ethical financing system for those who don’t have access to any other financial system.
2. To provide support to poor communities in starting micro-enterprises from which they can produce and sell goods and services and earn a living to sustain their livelihood.
3. To make the women establish their rights at all levels from participating in earning income by conducting various activities to involving themselves in making decisions.
4. It was the motive to increase the savings in households by creating more opportunities for self-employment which would contribute to reducing the poverty in the world and equality would be established between men and women in the society.
5. To eliminate the informal sources of money lending in which poor people are forced to pay higher rates of interest on loans by the moneylenders.
6. To contribute to the social and economic development of the poor communities of urban as well as rural areas by providing proper financial support to them and making them able to improve their quality of life and live in a society with equality.
7. One of the reasonsfor establishing microfinance is to reduce the dependence of below-poverty people on charities and grants.
8. By introducing microfinance a pressure can be created on the finance market to reduce the rates of interest charged on loans in order to make them more affordable to the poor segments of the society.
It was the objective of microfinance to create a world in which the low-income group, and poor people and other socially marginalized people, and poor households are able to have too high quality and affordable financial services with low-interest rates on loans and would be able to do more savings without any fear of being cheated and provide all financial services in an ethical and reliable manner.
Different people view microfinance...