Some viewpoints on the micro finance industry : a literature study

M.Comm.Poverty can be defined as, the lack of access to the basic needs and wants of a person, thus a lack of income and access to assets. The effect is a person who has no self-esteem. This place a burden on the economy of any nation and no country can survive or grow if the majority of its population is poor with no access to basic commodities and assets or a source of income. The spiraling effect of poverty is such that it becomes impossible for the poor to loosen themselves from the grip of poverty. The main reason is that most of the poor is illiterate and can not find sustainable jobs. It is important to break the grip of poverty, this means that the needs and want of poverty stricken people must be addressed in such a manner that it will create sustainability of income and the building of self-esteem. There are many ways of alleviating poverty i.e. subsidies by government or grants given by foreign governments. These methods are not always the best way of solving the problem, as it does not train the people to be self-sufficient. One solution in the fight of poverty is micro finance. But just as grants and subsidies are in themselves not the only solution, micro finance can not be the solution by itself. Micro finance should be a part of the solution in the alleviation of poverty. The rationale is that micro finance and its characteristics can satisfy the credit needs of a person but it also supplies finance to the poor and thus builds the self-esteem of the person. The roots of micro finance originated during the 1950's. However micro finance per se did not exist. The nature of the transactions can be compared to that of grants or subsidies. These pioneering transactions have paved the way for the real micro finance industry. The industry as we know it today has come in existence during the 1970's. During 1976 Dr. M. Yunus in his studies realised that the poor does not have access to micro finance and he formulated the idea that the people must be empowered to create their own income stream. He also realised that a bank can not create a repayment culture and that it is essential that repayments be controlled by peer pressure. The funding of such an initiative was to be done by the members themselves and not from funding by way of grants. He initiated the Grameen Bank of Bangladesh on the above principles and today is the first real successful micro finance institution. Today the Grameen Bank is based on the principle that groups mainly finance themselves with 10% of its funds derived from previous borrowers and the government. The Grameen Bank has a good record of assisting in the process of alleviation of poverty. A further positive input by the Bank is that it assists in the social upliftment of its borrowers. South Africa is a developing country with a middle income classification. This is however not a true reflection of its total population. Due to apartheid there has been an ethnic and racial disparity. This has caused a major difference in the split of income, access to assets and credit. South Africa has to investigate methods to alleviate poverty. The method of micro finance and the status of the industry in South Africa are investigated by this dissertation. The possibility of using micro finance as it is today in South Africa is also investigated and a possible solution to the utilisation of micro finance is tabled