2.3: MICROFINANCE INSTITUTION
A microfinance institution is an organization that offers
financial services to low-income operation. Almost all these institutions offer
micro credit and only take back small amount of savings from their borrowers,
and not from the general public.To micro finance industry; micro finance refers
to a wide range of organizations dedicated to provide financial services.
2.4: CHARACTERISTICS OF MICROFINANCE
Microfinance gives access to financial and non-financial
services to low-income people,who wish to access money for starting or
developing an income generation activity. Theindividual loans and savings of
the poor clients are small. Microfinance came into beingfrom the appreciation
that micro-entrepreneurs and some poorer clients can be `bankable', that is,
they can repay, both the principal and interest, on time and also make
savings,provided financial servicesare tailored to suit their needs.According
to Murray U and Boros R(2002). Microfinance as a disciplinehas created
financial products and services that together have enabled low-income peopleto
become clients of a banking intermediary.
The characteristics of microfinance productsinclude:
· Little amounts of loans and savings.
· Short- terms loan (usually up to the term of one
year).
· Payment schedules attribute frequent installments (or
frequent deposits).
· Installments made up from both principal and interest,
which amortized in course oftime.
· Higher interest rates on credit (higher than commercial
bank rates but lower thanloan-shark rates), which reflect the labor-intensive
work associated with making small loans and allowing the microfinance
intermediary to become sustainable overtime.
· Application procedures are simple.
· Short processing periods (between the completion of the
application and the disbursement of the loan).
2.5: REFLECTIONS ABOUT THEORIES
One of the most important elements need to be discussed is
that in which aspects theabove-mentioned theories are linked to our study.
Firstly, we are going to investigate theimpact of microfinance institutions on
poverty alleviation in rural areas in Rwanda. Incomeis one of the important
elements of living standards as well as of savings. The MFIs areproviding loans
to the poor not only to increase their income but also to mobilize
theirsavings. By mobilizing savings, poor people can secure their future and
feel safe. For thisreason, we have emphasized more to know the situation about
the income and savings ofpoor community of the society.
Apart from these, other factors that contribute to human
development, like education,level of access to treatment facilities and
empowerment are also included in ourinvestigations as these variables are also
related to the core program and methodology ofmicrofinance. We made endeavor to
explore and find out to what extent the standard ofliving of poor people has
been influenced since they joined the microfinance program.
From theory, we already know that how solidarity (Group
lending) worksas a synergy of microfinance. Previous studies have also shown
that solidarity is apowerful tool of microfinance to reduce the risk and to
keep the capital safe.
Lack of liquidity or fund is one of the big problems for
nascent entrepreneurs, who wantto set up the medium scale business. We will try
to discover the nature of liquidityproblem by observing the range of initial
capital that is borrowed from MFIs by thepeople.
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