Memo on Micro Finance Institutions

Central idea of improving social conditions in the third-world countries, raised by Muhammad Yunus, provides a fresh look on the help to underdeveloped societies. Should governments and charity organizations provide facilities in their opinion of a first necessity, such as electrical power and road systems? Or should they simply provide possibilities for the people to finance their real and current needs, not something for the future, the necessity in the long-run? I want to discuss the role of the government in the Micro Finance Institutions (MFIs) as an original concept of Mr. Yunus.

Although the majority of underdeveloped and transitional countries’ governments approve it and even involve into provision of micro-finance, many governments oppose the idea of allowing MFIs functioning in their economies. The utmost important function of the government is to create proper legal environment, supervise MFIs in the subject of their financial health and to help them in critical situations (Ledgerwood 28). In such way governments help MFIs to lower risks which arise on different bases, such as portfolio risks, ownership and governance, management and “new industry” risks (Ledgerwood 30).

I support the idea that governments should concentrate on the economic stability of people, rather than trying to decrease population in the third-world countries. Mr. Yunus derives this idea through the simple observation of the “Garmin families” which prefer to invest in decent education and development of their few children than giving birth to new ones and spend their incomes on raising multi-child family (Yunus 134).

To conclude, I find the idea of governmental intervention in the process of micro-finance quite adequate; however, it should be done in accordance to the successful functioning of financial intermediation between MFIs and the poor. Regulation should not adopt traditional loans schemes. Thus, micro-finance must always remain available to every destitute.

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