Role of microfinance in today’s world

Access to opening a savings account and lending of small amounts is the main function of microfinance. Expertise and capital are flowing increasingly into microfinance. More and more institutions are entering the world of microfinance. Poor people especially women are benefitted by this scheme. The growth and the development of microfinance market creates an impact not only for poor people and the contemplating finance providers, it affects more people. Read through to understand how it affects others.

Whom all be affected by microfinance

Finance professional– Microfinance demands highly specialized knowledge in finance along with a combination of other skills like knowledge of local language, customs, and social science. For all the finance professionals, it means opening up new careers for all the people who possess such skills. Also, it brings together people with different backgrounds and expertise to work in a collaborative team.

Investor– All those institutional investors who were engaged in focusing only on the return are making now investments related to microfinance. Regional and local banks are the first organizations to incorporate microfinance investments into the bank’s current portfolio. Also, the consumer finance organizations are conducting microfinance activities. If you are an investor, you could find out whether the organizations you are planning or already invested in any relation to microfinance. If it is, you could find whether it appeals to you and take decision accordingly to invest in which type of organization.

Individual– People do believe that currently we are all living in an era where the poverty would be eradicated. Many studies even support those beliefs. Initially only a very few percentages of people were able to be finally come over above the poverty line. Rest all were still struggling at below poverty with no money at all. With the emergence of microfinance from the financial institutions, more than 45% of people were able to cross the above poverty line. Poverty eradication can be welcomed as one of the key achievement for the humankind. We could also celebrate the distance possibility that all could sell and buy things from each other. Every individual who wishes to be a part of the poverty eradication scheme could opt to lend money to a microfinance provider based out of any part of the globe through a nonprofit organization. Thus even a common man could also contribute to the betterment of developing countries and cater good deeds to the society.

Inflation -Economic and production effects on business

Inflation exists whenever the supply of money is more than the goods and services available. It is the constant upward trend of the price level. It is not actually the high prices but the rising level of price which constitutes inflation. It can be considered as the devaluation of money’s worth. With a unit of currency, you will be able to buy less. It is also a recurring phenomenon. However, a sudden increase in price or a small increase in the price level will not be considered as inflation as it will be reflecting the workings of the short-term market. The inflation affects all segments like employment, investment, salaried people, shareholders, debenture holders, debtors, creditors, etc. The major impact is on business and in turn, affects economic and productivity growth of the country.

Production and economic impact of the inflation

The inflation will not always result in higher output. Inflation will at times have a favorable effect on the production. Usually, the profit is considered as a rising function of the level of price. The inflationary situations force the business organization to increase the product’s prices. The rise in price and profit urges the organizations to invest in a larger amount. This investment’s multiplier effect will, in turn, result in generating higher national output. But, this favorable inflation’s effect will be only there for a temporary period till the production costs and wages rise rapidly.

Furthermore, if the inflation is of the cost-push type then it will be associated with output fall. Hence, there is no actual relationship between output and prices. If the demand increases, it will result in increases both output and prices but in case of a supply shock, the price will increase but the output will be reduced.

The inflation will bring down the production level. When there is a prolonging inflation, the business organizations will not be able to ascertain their revenues and costs accurately. Risks element will be more. The business organizations would be very much reluctant to make more investments and to get into long-term commitment because of the uncertainty of future inflation. In this situation, the growth of the economy will be hit badly.

For an economic growth, low rate of inflation is necessary. The mild inflation will have an overall encouraging impact on the national output. The economic growth in the long-run is affected by the high inflation rate. Also, the hyperinflation lowers the savings habit of both the business organizations and individuals.

Microfinance – The Important Terminologies

The following are the important terminologies of the Microfinance concept, which anyone willing to avail it or learn about it should be aware of!

  • A microfinance institution (MFI) 

It is the institution offering microfinance-related assistance, such as microloans, micro savings scheme, and micro-insurance to the deserving individuals, that is, generally, people belonging to the low-income community, who cannot access the financial assistance offered by the traditional institutions.

  • Active clients 

The total number of clients with the outstanding loan amounts.

  • Group lending

It is a lending mechanism to compensate for the absence of collateral and, as well as to alleviate the risk encountered by the MFI, in where the group of individuals, known as the solidarity group are pooled together to make the loan repayment. That is if, for some reason, one member of the group defaults, the others in the group would compensate for his/her act thus, upholding the repayment rate factor, every time. This lending mechanism was also introduced to create a peer pressure that naturally, encourages everyone in the group to repay their dues on time.

  • Individual lending

Although rare, not impossible, where unlike the group lending, here the repayment solely depends on the individual lender, any day!

Microentrepreneurs 

These are the people owning the small-scale businesses that are referred to as the microenterprises.

  • Microenterprise

The informal business sector, usually, based out of the home with up to 5 associates.

  • Ultra-Poor 

These are the very poor people, whose daily existence is limited to less than $1, unfortunately!

  • Upper Income

 People belonging to the low-income category, whose earnings are in the range of $2- $5 per day!

  • Voluntary Savings

 This referred to the amount of money voluntarily deposited in the MFI by the individuals availing microfinance, which shan’t be used as a condition for accessing any loans now, or in the future.

  • Tier 1 MFI

This refers to the mature and large Microfinance institutions, whose activities are highly transparent to the community o perhaps, the world.

  • Tier 11 MFI

 These refer to the small or medium sized MFIs that are yet to attain the complete maturity.

  • Tier 111 MFI

 Usually the growing or the start-up MFI and the immature NGOs come under this category.

  • Unbanked

This term is used to refer those employed poor individuals of the world who are not eligible to access the conventional financial assistance offered by the formal banking sectors.

  • Non-financial services

The educational services offered to microfinance participants, be it the ones related to financial literacy or the other generic ones that help them tackle the social challenges come under this non-financial services category.

Financial Advice For A Successful Merger And Acquisition

Businesses are run by the owners and they are governed and advised in all matters by the financial advisors and others from the various departments. It is with all of these people that a business gets to flourish well in the market and brings success to the owners and the others. Everyone needs to understand the basic financial terms for the business to take the right path for though each head belongs to a different department with a different and unique experience, it is the collective efforts and brains of all these people that aid the business in its successful running. So though not professionals, they all become the financial advisors of the company when comes to important decisions.

Every business owner sits with these financial advisors on important decisions and finalizes them only after taking into account their points of view. Now, this is very much important when a business decides to merge with another company or when it decides to take up or acquire another company for some very beneficial or pressurized reasons. So now what happens here? What are the important things a company that is going to acquire another needs to do before it actually starts the acquisition process? Here is a brief about this.

  • The primary thing that the acquiring company needs to look into is the finance department and its training that is necessary to be given to the finance people of the seller or the merging company if they are getting absorbed as such. This is very important because this is the team that would be handling and managing all the finance-related details that which would reveal the profit status at the end of the year. And this training is mandatory because the finance executives from the merging company would now be absorbed into a different line of business altogether and to make them feel comfortable with the nature of work, a training session becomes necessary.
  • Then comes the merging of the different financial policies and concepts followed by the two companies. Generally, this differs from one company to the other depending on the type of service or business they are into. So this becomes important to be sorted out.
  • Now the merged company should sit to note the various opportunities that they can tap on and based on this they need to set new milestones.
  • Bringing in new resources if necessary.