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Friday, November 19, 2010

Assessing the Direction of Microfinance Institution Today

Since microfinance is introduced all over the world, especially across third world countries, Non-Profit Organization (NGO) easily adopted the same development approach to enhance their project’s sustainability and enhance organization’s socio -economic impact.

On the matters of feasibility, this is done by reaching those people who need capital for them to start an entrepreneurial activity. However, with the high saturation of, either commercial or non-profit microfinance institutions (MFI), the sustainability and effectiveness of MFI loan programs is still in a critical discussion.
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Many issues arise in the field of microfinance operations, from the loan disbursement up to loan collection. As a Microfinance operator or community development professional, you may ask yourself, “Does this microfinance program can really help to sustain development, or it is just a palliative remedy for the poor?”

Focusing to the main topic above; how do MFI should operate and how do we know that the loan / lending programs are effective? Below are some points to consider in assessing a microfinance institution.

“A model MFI operation should have of good number of reach and sustainable impact”

The ideal Microfinance program should be able to reach the main benefactors or clients. If you operate or part of Microfinance institution, which values more of social benefits than financial profitability, high numbers of reach and also in quality of life impact must be manifested to the beneficiaries. Thus, it only means that the program itself must propel the people with sustainable quality of life. However, given that microfinance does not only stand on grants, they should also be able to get ROI (Return of Investment) on its stake holders, from private sector or other funding agencies, but with minimal interest rates. And to be able to get these feasible ROI on Microfinance programs, the institution must get a portion of the interest from the loan amount lend by the creditors. It’s a good thing the government regulates such interest in loans.

“A model MFI operation knows to balanced investments and mission”

It is not a secret that today; most of the microfinance institutions are profit-oriented. But this is not something that is evil. Hence, this is way to compete, as well as to survive amidst oversaturation of the microfinance or lending operation. In the Philippines, oversaturation in most areas is one thing that make microfinance operation challenging. Furthermore, to be able to be a good microfinance operator, the need for profit (or capital gains) should not make vulnerable or compensate the mission to help the poor in attaining economic freedom.

As a conclusion, the microfinance industry can be really a superior help as long as the heart, mission is there while moving forward to make the poor economically progressive. In addition, this will be attained if there will be balance between the income drive and the (public) service drive of the microfinance institutions.

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