Socio-Economic Differences and Deployment of the LDC Micro-Finance Bottom-up Approach in DCs

Socio-Economic Differences and Deployment of the LDC Micro-Finance Bottom-up Approach in DCs

Samanthala Hettihewa (University of Ballarat, Australia) and Christopher S. Wright (University of Ballarat, Australia)
Copyright: © 2010 |Pages: 13
DOI: 10.4018/jeco.2010040104

Abstract

Microfinance (MF), after showing great success in poverty-relief in less-developed countries (LDCs), has experiencing rapid growth and interest in developed countries (DCs). However, current DC MF literature gives the impression that survival concerns are diverting DC MF from its original poverty-relief intent. As e-technology evolves, further threats and opportunities are created for MF by changing cost structures and relationships. This study uses descriptive analysis to infer that DC MF needs redesigning for DC socio-economic conditions or it will continue gaining a reputation of being too poorly focused, ineffective, and inefficient for use in DCs. After showing that LDC poverty is harsher than DC poverty, this paper reviews current-performance concerns of DC MF, links those issues with the effect of regulatory and other socio-economic factors on micro-enterprise, discusses how MF can relieve poverty in DCs, and concludes that MF needs refocusing before DCs investing in further developing/adapting MF infrastructure.
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Background

How Does Microfinance Work?

Micro finance works best with those whose inability to access main-stream financial services either holds them in poverty or puts them at risk of becoming poor. A non-exhaustive selection of poverty at-risk-groups in DCs is given in Table 1.1

Table 1.
Isolation IssueExamples/description
Culture, history, religion and/or ethnicity,European Gypsies, Australian Aborigines, Canadian 1st Nations, US Native Americans, multi-generational-welfare families, and new migrants with language issues. Also, ageism (50+ or young adults) or sexism.
Educational challengesIlliterate, innumerate, inarticulate, unskilled in a trade or profession.
Few employment prospectsUnaccredited and/or inexperienced in the work-force (often directly closely related to the educational challenges above).
Ill-health, disability, or disfigurementMental or physical difficulties arising from disease, accident, age, or congenital issues.
Family obligationsSingle parent households, the role of wife in a traditional extended family, adult children with disabled parent(s).

Thus, for MF to work in DCs: 1) difficulty accessing mainstream-financial services must be a cause of poverty; 2) access problems of at-risk groups must be targeted; and 3) the process must be sustainable. If these attributes are absent, DC MF may become an innovative welfare variant and/or boondoggle (mostly benefiting MF providers via employment, power, and status). However, socio-political issues can be as important to those funding MF, as poverty relief. Helms (2006) found that three-of-four common MF-program-funding providers in LDCs are very strongly interested in social development and the fourth is likely to promote itself as having such an interest via government requirements (Goodwin-Groen, 1998; Pitt et al., 2003; Dunford, 2006; Pitt et al., 2006; Deaton, 2009).

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