First and foremost, we have to admit that Yunus’ intended purpose for microcredit was phenomenal. Looking at its core definition, its original purpose in good faith was to provide, or in other words extend loans to poor people who could not access it from big banks due to several obstacles. For instance, the poor people in almost all societies of the world have no collateral and a credible credit history and portfolio that could enable them to get capital. This typically translates to them being in continued poverty, unless microcredit pioneered by Yunus comes to their rescue (Rhyne12).
Yunus’ assumption that microcredit eventually leads to net jobs and income creation is real on one account and far-fetched on another front. It is real in a sense that capital is a major factor for any business to be established. Microcredit will provide this capital to people who otherwise would not have received it. Therefore, when the poor put this capital into extensive production, output will be realized which when sold, creates income for them. But on the other front, this looks illusive. This is because the new twists of business the poor get into, goes beyond a mere production process to create income. Other channels such as distribution channels, marketing among others have to be considered carefully, and if not looked carefully, business producetion of the poor people might end up going into waste. I do believe, this is what was lacking in Yunus original plan, and consequently might be responsible for the down fall of microcredit (Rhyne14).
Despite the fact that the neoliberals in Washington DC shared the same faith as Yunus, I do believe that they also contributed significantly to the failures of the system. Britton Woods’s institution such as the IMF and World Bank’s ideas about full cost recovery was far beyond the ability of the poor people being aided out of poverty. Imagine the poor people with low quality education, struggling in production just to service the loan, instead of creating a pull of capital for their future business expansion. In fact, meeting the full costs of the capital and low education standards by the beneficiaries could be attributed to the failure of the system (Fuglesang et.al 17).
Importantly, microfinance discourse cannot be complete without looking at Grameen Bank founded in Bangladesh in 1976. Importantly, Grameen Bank is by far the modern practical incarnation of microcredit, and through it, Muhammad Yunus actualized his ideology of micro-financing. Crucial to note is that at its inception, the bank operated like a non-governmental organization and only attached small interest rates on loans it awarded, something that was good for the borrowers. But the problem began with the ideas propagated by the Harvard Institute for International Development coming into force. This led to the complete commercialization of the system which made the loan expensive. Therefore, I disagree with the idea that commercialization availed the loan to all poor people. Instead, it made it more expensive with a lot of loan proceeds repatriated back to the developed nations, making them richer as the developing nations such as Africa remain in poverty (Fuglesang et.al 21).
Regarding the lecturer’s gathering of storm of 2007, I agree that indeed no sustainable impact could be linked to micro-financing. It is evident enough that a lot of money has been channeled in the last thirty years or so. However, no substantial impact could be pointed. In this aspect, I would point some blame to the composer Yunus for not critically synthesizing the requirements for prosperity. For instance, he ignored the issues like political instability in these countries, which was an impediment. Again, he ought to have looked at the human resource capacity in these countries in terms of knowledge, and whether the products from such countries would compete effectively in the international market (Rhyne 32).
Shifting to first problem, I agree that a lot of microfinance fund in the developing countries is used for consumption. Indeed this is inevitable owing to the increasing inflation the world faces today, and yet, poor people still have to meet their basic needs. Therefore, one does not expect such poor population to save substantially. Regarding the third problem, I do not think it is accurate. This is because the social fabric of the society cannot easily be shaken by foreign funds extension. Other factors such as culture cohesion and adherence to religious doctrines cannot be overlooked when it comes to social solidarity (Rhyne 28).
I also conform to the ideas espoused in the second problem. Indeed for many years, developing nations have remained stuck where they are because of their informal nature. They have heard scanty productions in the most rudimentary way. It is difficult for such products to find their way and compete in the international market. These issues in particular have to be studied and considered by the pioneers of the system before extending such loans. I am sure they resulted in high default rates.
Regarding the support for microfinance, I want to diffuse the notion that it is an unfavorable movement. One important thing to mention is that development within the poor nations cannot be pegged only on micro-financing. Other factors have to be put into effective play as well (Fuglesang et.al 19).
Lastly, I have a lot of conformity to the alternatives to microfinance. For instance, it is much more commendable that organizations come up with new strategies that emphasize saving rather than increasing the levels of debts owed by the poor. This is because it will increase the capital of the poor for business ventures. On the same note, packages like cash grants to this vulnerable part of the society would improve their economical situation in a more efficient way, rather than loans that put a lot of pressure on people when paying them off.
In conclusion, I do believe that microfinance is still fundamental for the growth of poor nations. Despite the fact that it was not deeply synthesized by the founders, it will still continue to remain an ideal vehicle for the uplifting of economic standards of the less fortunate in the society. Therefore, collective participation for all stakeholders should be encouraged if its original goals are to be achieved.