The Impact of Microcredit
Augsburg (2015) experimented with an aim to analyze the impact of the microcredit to the poor. This was after realizing that a great part of the world limits the poor access to any formal source of credits. The author wanted to establish the impact of credit to the poor and those who are dependent on loans. Most individuals according to the article depend on informal loans due to limit access of formal loans. The limit of access to loans cam heightens the level of poverty by restricting entrepreneurship. The article aims to uncover whether the availability of formal loans especially to the impoverished can reduce the poverty level. A group of individuals applied for a formal loan but were denied since the loan officer termed them as being of less quality when compared to regular clients.
In his article, Augsburg (2015) tries to consider the impact of giving a loan to the poor in a case where micro-lending is well established for only regular clients. The loan discussed in this paper is mainly aimed for business, and according to the findings, most individuals established businesses with the loan, and there was a report of increased self-employment. The loans also increase individual profits unlike when the individuals are on wages. Therefore, the article is proof that issuing a loan to the poor will increase profits as well as reduce consumption rate.
When comparing the findings with those of Al-Mamun et al., (2012) that research on how microcredit could improve the income of the poor, it is clear that the microcredit plan was an excellent strategy to increase income. More to this, AIM microcredit plan alleviated poverty among the poor households in Malaysia. Thus, the AIM proved to be important, and since it was to increase the services and products offered, that could be a helpful strategy to meet the needs of poor households while also reducing the number of loan defaulters.
Objectives
The main aim of the article was exploring the impact of microcredit on mitigating poverty among Bosnia population. In his article, Augsburg et al., (2015) used Bosnia MFI to offer loans to the poorer marginal segment that was previously avoided. Bosnian MFI could only lend loan to the segment of they agreed to take the possible risks that were associated with the loan. To enable this, the MFI was made to employ individualized screening system rather than the normal automated credit-scoring system so that it could differentiate the individuals who qualified for the loan and those who did not. Loan officers were also trained to on how to identify individuals who did not qualify for the loan but who could be willing to accept the risk so that they could benefit from the offer. The loans were given according to the maturity and interest rates hence those were the considered risks associated with MFI loans.
The article objective was to find out the consumption rate of a loan by Bosnia population which made MFI increase access to loans by even the poor. For the impoverished individuals, the loan was given as liability loan without a grace period, but it had monthly repayment. This was to create entrepreneurship opportunities for the less privileged where Augsburg et al., (2015) wanted to establish if the consumption could increase if there were access to such loans by all individuals. It also wanted to find out the returning rate of the capitals by the less privileged. Availability of loans proved to increase feasibility in coming up with a profitable business when the loan was combined with the household savings.
On the other hand, research by Al-Mamun et al. (2012) aimed to depict the significance of microcredit on poor households where they could be offered profitable business opportunities. The AIM, as used in this article, offered opportunities such as beneficial investment plan, reduced distress during loans, increased the allocation of loans and heightened risk-taking for all individuals. The institution had different kinds of loans including I-Srikandi Loan and I-Mesra which were all provided at a fixed interest. Loans were briefed on loan repayment period, and the effectiveness of the loan was assessed for all individuals regarding income increase.
Findings
The article by Augsburg et al., (2015) found that increased access to loans led to more investment. The treatment group was more likely to have a 20% outstanding loan and an increased percent of having an MFI loan. This was due to better access to the loans as the treatment group was prepared to take risks and raise more funds. The loans also increased chances of self-employment and having increased income for the loan beneficiaries. There was increased use of loans on business, and more profitable businesses were set forth. When looking at the hours one worked, changes were not observed because the hours used for working previously were converted to business hours. The consumption rate varied between the rich and less-privileged but the saving rate reduced for both. For those who had savings, an increase in consumption was recorded (Augsburg et al. 198). The social impact of loans was improved schooling rate because the liquidity constraint was alleviated. There was no relationship between stress and loan hence the loan improved the lifestyle of the poor.
The research by Al-Mamun et al. (2012) revealed improved income and the rate of consumption among the poor. This is because the poor who accessed loans used it for investment where they started small businesses that promoted the flow of capital in the market. Improved education was also reported among the children of Malaysia. This generally improved the quality of life of those individuals since the program also offered training of skills that were employed in businesses. More businesses were created which improved the quality of life for the majority.