Zach’s Post #5 Micro-credits, Nigeria, M-PESA

There are Micro Finance Institutions (MFIs), these institutions are small full of small accounts for saving or micro-credits. Micro-credits are very small loans to people in poverty that do not have collateral or a verifiable credit history. In Poor Economics by Banerjee and Duflo they have arguments for and against micro-credits.

Against: People say that Micro Finance Institutions (MFIs) are preying on the poor by lending them money that they cannot repay. When there are many small accounts banks have to spend even more money for people to manage them. Some MFIs are charging a 10% and even up to 20% “tax” for people to save their money in a bank.

For: Some MFIs are helping and teaching the poor how to save their money.  “250 poor families in Bangladesh, India in South, Africa describe every single one of their financial transactions to survey researchers who visit them every two weeks for an entire year” (Banerjee 186). This quote is showing that some of the MFIs are teaching people how to budget and what they are spending their money on, usually writing everything down that you buy will make you spend less money. Micro-Credits are great for when poor people need money for an emergency as in medical or starvation emergencies. They are also good for if people are trying to start a business

I believe that there are the goods and bads of micro-credits. I like that MFIs are helping people save money, but I do not like that they are “taxing” people high amounts to keep their money in the bank. I think that micro-credits are also good for emergencies or a way to help start a business.

 

Micro-credits or Micro Finance Institutions in Nigeria seem to be working well. According to the Central Bank of Nigeria 53% of the population is a part of a savings “club/pool”, these are people that are helping each other out while they are trying to save money. The other 47% of the population in Nigeria still do not have assistance from financial services, This 47% could be from a number of reasons, people might now trust the banks, people might not have access to banks because they are too far away from where they live, people might not have the need for a bank because they are doing just fine on their own, or people might live in a closed off community and they do not have anything to do with people outside of their community.

 

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Following amounts are in USD (United States money system). According to mix market, there are $550 Million in loans and 1,701,000 borrowers, this being about $330 a person if it was all divided equally. The good thing is that people are saving their money. There is $265 Million Dollars in deposits and about 3,277,000 depositors an average of $80 per person. This is not a whole lot of money, but if you compare it to items that Nigerians could have bought this could have been four pairs of jeans, about 2 pair of shoes, 53 cheap meals, or even four pretty nice meals for two people.

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Digital technology is making a huge difference is the way people are using their money and the way that they are using it. M-PESA is a service on people’s cell phones that allow them to put money from their bank accounts on to their phones or M-PESA corr220px-An_M-Pesa_Payment_Till.JPGcorrespondents (you give them cash, they put money on your phone this could be like a super market). After they have loaded their cell phones with money they are able to either transfer money to others such as a family member of friend, or they even have the possibility to buy items with their cell phones. This is allowing them to have access to their money without going to a bank.

 

 

 

References:

Banerjee, Abhijit V., and Esther Duflo. Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: PublicAffairs, 2011. Print.

Central Bank of Nigeria:  https://www.cbn.gov.ng/devfin/MAB.asp

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