Unitus—The Microfinance Schism, Challenges, and Major Premises Underlying It

Unitus
Student’s Name
Institutional Affiliation
Course Name and Number
Lecturer’s Name
Assignment Due Date
The Microfinance Schism and Challenges in 2004
The year 2004 had at least two schisms within microfinance. The first was whether microfinance should serve the poor in general or focus on meeting only the poorest's needs. Some people viewed that microfinance should give the poorest an upper hand because this group had the least opportunities and were in direst need. Organizations with this school of thought supported a more charitable microfinance approach that emphasized group lending and simple-credit only products with small maximum loan amounts because this approach could best meet the needs of the most impoverished communities. Some feared that the entry of business entities into microfinance would promote individual loans, with increased average loan amounts and more diversified product offerings. This would neglect the needs of the poorest.
The second issue in the microfinance schism was the suitability of profiting from the poor. In his book, The Fortune at the Bottom of the Pyramid, C.K Prahalad wrote that most charitable institutions think that the private sector is insatiable and uncaring and that no one can trust companies with poverty alleviation problems. This view indicates that profit motive and poverty mitigation do not mix easily.
One of the microfinance challenges in 2004 was the massive market and regulatory failure that hurt the poor. For instance, many developing nations experienced high and volatile inflations. The necessary legal framework for financial services was also unavailable. Besides, government regulations were likely to be counter-productive. For example, governments in developing countries introduced caps on the interest rates charged on loans to the poor. Another challenge was corruption. It increased the cost of financial transactions, prompted undesirable transactions, and undermined consumer confidence in the financial system. Another challenge was th...