Challenges in Microfinance

Micro-finance has been a quantum of solace especially for the impoverished population that are unable to access finances from banks and other large financial institutions. Microfinance has enabled the poor to be able to access different financial services such as funds transfer, insurance, savings and more importantly credit that they would not have otherwise access to. Rutherford & Arora (2009) indicate that the poor need to have access to credit to cater for the different needs which are lifecycle needs e.g. funerals, personal emergencies e.g. unemployment, disasters e.g. fire, and Investment opportunities. Microfinance has been able to meet this unmet demand for the poor. A major concern is the poor performance of microfinance institutions as compared to the perennial banks in offering their services. Therefore it is important to identify the challenges that are faced by microfinance institutions in offering their services to the low-income households. As noted by Hermes (2014) noted that even though microfinance are meant to increase the low-income earners participation in economic activities it has only had a minimal impact. 

Research Question: What are the challenges faced by microfinance institutions in bridging the economic gap between the rich and poor?

The first objective of this study is to determine if micro-finance institutions are sufficiently, single-handedly, able to bridge the economic gap between the rich and the poor. The second objective is to determine the impact of regulation and supervision on the performance of microfinance institutions (MFI). The third objective is to outline the inefficiencies that exist that hinder MFIs in attaining their goals. The fourth objective is to determine the impact of management in the success or failure of MFIs. The last objective is to determine if MFIs have been able to meet remittances and savings needs among the poor.

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