Introduction Micromanage is the provision of financial to people who are living in poverty. The system is providing small loans to poor person who want to expand their business. A series of financial service include loaning, saving, insurance and so on. There are two mall characteristic on micromanage. Firstly, It Is focus on below average Income person or poor person for their customers. Secondly, It must ensure that the possibility of its own sustainable development. The beginning of the activity was most closely associated with economist Muhammad Yuan’s In 1976.
He was born In Bangladesh. Between 30 years, the success of Grahame Bank which was built by Yuan’s was noticed by the world. Then, micromanage has covered nearly development countries and some developed counties. In the case of the text book, micromanage was present by two extreme parts, macro success and global mess. For the macro success, lender loaned money to women In order to support their family. Then, much family got rid of poverty. By 2001, more than 7,000 micromanage Institutions had served 120 million borrowers around the world.
On the other hand, there are two debates lead to huge problems. Firstly, most of micromanage institution’s new hardliners were rich investors. Secondly, several competitive micromanage institutions loaned money to the same uneducated clients, if crop or ventures fail, clients would face crushing debt loads. For example, in some parts of India, almost 80% of borrowers were in default. 2. Case question 1 Therefore, what happen about micromanage? Does it macro success or global mess? 2. 1 SOOT anally;s For the critical thinking of micromanage is SOOT analysis.
SOOT analysis may help us know more about micromanage totally. There are two strengths for micromanage, the first one is that helped in decrease the poverty. The target of micromanage is to provide loans to poor people who want to start small business but cannot able to receive commercial bank help. For example, more than 350 million people in Indian below average income. The micromanage institutions offer the opportunity to them to start their own business. So, micromanage helps In decrease the poverty. The second one Is that promoting the development of local community.
If every Individual who receive small loans to become rich, the development of local community will be promoted. There are two weaknesses about the micromanage. First of all, It Is not proper regulated on banking process. Due to lack of efficient rules and regulations there would lead to high case of credit risk and defaults. Moreover, micromanage Institutions focus on less people only. For example, Indian’s 70% of people live In the village, that Is to say that most of poor area haven’t been touched. For the opportunity of micromanage, there are two mall points also.
Initially, It still has huge untapped market. For example, Pakistanis micromanage Industry was developing faster already, with an expansion of nearly 47 percent during 2007 (Banana, 2008). By the end of addition, some small business which were loan from Micromanage institutions would roved much more employment opportunities. Micromanage institutions not only loan money to individual to start their business but also help in the increase the employment opportunity to them. There two threat analysis about micromanage as well. The first one is that over involvement of government.
For example, in Indian, bank had freeze on credit to micro lenders for many times, it led to Indian’s micromanage industry pushed to the brink of collapse (Indian’s micromanage sector under threat, 2010). Furthermore, it is a high competition industry. For example, Indian’s commercial bank normally provides about SIS$ 133 a week in credit to the certification industry (Indian’s micromanage sector under threat, 2010). So, it is cause to high competition for much more applicant. 2. 2 Why has micromanage been quite successful on worldwide basis?
In the study case, 84% of micromole recipients are women(Displacer, Guruin, ; Moreland, 2011). Therefore, it is easily find that most of micromanage institutions target to women. This is because that repayment is higher among female borrowers, they usually do more conservative investment and reduce moral hazard risk(Displacer, Guruin, ; Moreland, 2011). On the other hand, when women improve their resistances, they also improve the lives of their children. So, by investing in nutrition and education, they can help to create a better future for their children and their communities.
Furthermore, many micromanage institutions help much poorest families get rid of poverty. It is “to ensure that 175 million of the world’s poorest families, especially women, receive credit for self-employment and other financial and business services”(Displacer, Guruin, ; Moreland, 2011). Thus, it absorbs global attention. In addition, the success of the Grahame Bank of Bangladesh indicated that a new business model had been created. Until recently, Grahame has reported repayment rates of 98% and serving over much more function to poor person (Morocco, 1999).
This new business models was imitated by the world. 3. Case Question 2 Using agency theory, identify the area or improvement for the government of certain MFC have be found to engage in questionable practice. Micromanage institution is a party that helping poverty to do business by offering mint-loan. It is an agency of not only providing finance service to support poverty but also an organization contributes to society. The main problem of lending money to pool people is high risks of returning the money.
The pool people, who are lack of educations, experience and need more train to return to the Job. As an agency the “principal” (top managers) require profit while loan office is less concern about the interest. 3. 1 Agency theory Agency theory explains the relationship between principals and agents. The objective about this theory is to identify and resolve the problem and conflict between principal and the agent of the principal. The two problems agency theory addresses are: * Problem of desire goal of principal and agent are in conflict. Problem of This theory had been used in examining the relationship of agency, define as “a entrant under which one or more persons (the principal) engage another person (the agent) to perform some on their behalf which involves delegating some decision making authority to the agent” dense ; Neckline, 1976) The following equation shows the result of problem come from. The utility of the principal will focus on return, whereas the utility of the agent will focus on the income. Agent wants to increase the income while the principal refers to more return.
As the result, there is a trade-off exist in between. UP (R) = 1/AJAX (l) UP = Utility of the principal Utility of the agent R = Returns Income In consequent, to resolve the problem is to design the ideal contract. There are two types of contracts design for such problem: behavior-based contracts and outcome- based contracts. Behavior-based contract, the principal monitor, measure and reward the base on the agent’s behavior (Prenatal, 1992). The outcome-based contract, the agent will be rewarded according to the realized outcome (Prenatal, 1992). 3. Porter’s Five Forces Porter’s five forces is concept for analyzing industry and developing strategy of a company to position business. Base on this concept to understand micromanage industry environment. Investors always seek for return; the industry environment will impact how efficient the decision made for profit. 1979) Suppliers (High) There are many investors in market; those can divide into two types, commercial investor and faith investor. The faith investors are not seeks for profit, but long term poverty alleviation. (Carbuncular, 2010)Commercial investors are looking for return because the capital market is cheaper.
Unfortunately there are most MFC remain lending money to pool people are informal which the stakeholder are commercial investor. Threat of new entrants (High) Commercial investors are better in positioning that they have better access than financial service expertise. Low entrant capital require lead to low entrant standard require. The investors seeks return, it cause high impact in investment. Commercial investors look for short term invest, and it can be re-enter for commercial investment as a cycle. Threat of substitute (Medium) Poor people need money of making living and other social purpose (education, insurance, sickness. G) for life long. In India, the Reserve Bank of India (RIB) provides life insurance for poverty to improve the life expenses under the micromanage étagère. In many other countries, MFC design new financial service according to the need of poverty which charge very low interest. Internal rivalry game. As entrant barrier low, the major operators in industry are informal institution (Eggs, MFC and Nags). The competition will increase when an established organization goes into market and implement promotional strategy for boosting out of bad situation as it is weak.
In additional, some formal bank start to do financial support with the help of other commercial organization like provide loan for She. This factor will attract more operators in market. . 3 Challenge Facing by Micromanage The micromanage system is separated in three levels: micro, mess and macro. To understand the function of those levels activity, identify the challenge Miff are facing by governance. Source: Adapted from Helms, Access for All The micro level activity includes both perspectives of clients and MFC. The problem comes out from the borrower’s perspective is limitation of financial support.
This would cause predatory lending practices. From the clients’ perspective, the problem relate to the managerial experience of clients, how they manage the funds and sustainable funds. The mess level is about services and infrastructures. The MFC need strong backup to support ongoing financing lending process. Limited capacity would terminate the funds to borrower. The macro level consists of central bank, finance ministries and other financial department. The problem comes out the potential risk when new policy established (monetary and currency, egg).
The failure of systemic function would lead to a collapse of Miffs. 4. Case Question 3: ON ETHICS: Given the criticisms that “the rich have literally profited from the dirt poor”. Do you have any reservations about investing in Miff that have gone through Ipso? Micromanage is a key thing that can help people living in poverty to become financially independent. It is better able to provide for their families in times of economic difficulty. Considering nearly half of world in less than two dollars a day to survive, micromanage is an important solution.
However, micromanage has its shortcomings. Thus, in our opinion about this question, we are neutral. Here are advantages and disadvantages in below. 4. 1 Advantages Access Banks will not extend loans to those with little or no assets, and generally so not engage in small size of loans associated with micro-financing companies. Micromanage is based on the concept that even small amounts of credit can help end the vicious cycle of poverty. Extending education Families receiving micromanage are less likely to pull their children to leave school for economic reasons.
Improve health and welfare Micromanage can lead to better access to clean drinking water and better sanitation, and providing better access to health care as well. Sustainability In the developing country, even a small working capital loans $100. It can be launch a small business. Benefactors can help pulling themselves and their families out of the poverty. For example, a 19-year-old girl named Salaam’s, from Sierra Leone started pay the school fees by her own. She Joined a local saving and Loans Group Plan in her community. This group can give small loans to them.
Salaam’s took out two loans. One is starting a small rice selling business and one is paying for her school fees (Kate, 2011). Job creation Micromanage can help create new Jobs. It has a beneficial impact on the local economy. 4. 2 Disadvantages Some investors who are interested in specific micromanage PIP must be wary (wise GEEK, 2012). Because some micromanage institutions are free with funding to the or, but require excessive interest payments in return. This can put a person into a wore financial hole. This would cause social unrest. Miff in India increased the risks.
Miff might face increased pressure to provide the assets and income growth Unifier, 2010). Thus it would increase default risk. In addition, because of high yield investors’ interests, micromanage institutions issuing high risk loans. This could cause valuation issues. However, lenders often could not perform. Because India does not have national systems that track the borrower’s credit history Unifier, 2010). 5. Conclusion Firstly, we give the reason of micromanage has been successful. Secondly, we identify the areas for improvement of Miff.
