Reluctant Entrepreneur and Microfinance Enterprises

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Table of Contents

Reluctant Entrepreneur
Why microfinance most often makes things worse, if not much worse
Works Cited

Reluctant Entrepreneur

In an attempt to find solutions to build the economy in their country, Banerjee and Duflo look at the theme of a reluctant entrepreneur from different perspectives. In the first instance, they argue that a reluctant entrepreneur is one who understands the need to live a better life, but does not build a substantial model to create an ample environment for improved performance in his/her daily duties (Banerjee and Duflo 87).

In their quest to view the various aspects of entrepreneurship, they visited the Bombay Stock Exchange and observed four women who sat by the road. Consequently, they view a reluctant entrepreneur as helping poor people, especially those living in the slums, to start a business. However, little or no effort motivates them into getting on to higher heights in the entrepreneurial field as they are neglected once given the initial capital.

Moreover, they argue that reluctant entrepreneurs strive for a large amount of capital to start a business rather than using the little available resources within one’s reach to initiate a project and build it over a long time. In Guntur, for instance, an employee of Spandama starts as a trash collector, the lowest-ranked job in India, but later builds a successful trash collecting and sorting firm.

Why microfinance most often makes things worse, if not much worse

Batman and Chang (13), in their introductory remarks on microfinance and poor economics, challenge the international perspectives of many entrepreneurs on the developmental agenda of the quickly arising microfinance; they maintain that such schools of thought promote poverty among the peasants of various countries (Sachs 36).

Based on several aspects of business criteria, they strongly opposed the management and involvement of the community in the activities of the credit-based firms. Instead of enriching the lives of the poor, microfinance rather deteriorates their lives. Microfinance enterprises worsen situations in the manners discussed below.

Microfinance ignore the economies of scale

Bateman and Chang (17) argue that microfinance ignores the economies of scale, as most of the firms are small, hence are not able to diversify. This limits their chances of prosperity and survival in the financial, competitive field. Besides, with the limited sources of income, the firms are incapable of providing enough loans at reduced rates to its members, thereby limiting the expansion of services to customers.

Microfinance ignores the principle of local demand

Microfinance ignores the principle of local demand, which is the fallacy of composition. Johnson and Rogaly (84), in their review of microfinance and poverty eradication, reason out that the rule of supply creates demand that does not hold since most people struggle to meet their daily needs. Therefore, it merely shows interest in the upcoming microenterprises.

Further, those who get the microloans eventually end-up selling their family assets to repay the loans, and, at times, are jailed for being unable to repay (Bateman and Chang 22).

Microfinance inhibits industrial growth

The microfinance institutions (MFIs) inhibit the industrial growth of a community. The MFIs operate on a short timescale to process the loan. Consequently, the high payment rates of these firms, together with the shortened period of repayment, do not promote the industrial construction of the community; they rather focus on minor production operations.

Microfinance failure to connect to other enterprise firms

According to Bateman and Chang (24), the ability of MFIs to build connections with other sectors either in the loaning field or in other specialization determines the effectiveness and prosperity of the enterprise. MFIs undermine and abandon such linkages, and form their own systems of operation and building new ideas without analyzing the hitches in the existing firms.

Works Cited

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

Bateman, Milford, and Ha-Joon Chang. “Microfinance and the Illusion of Development: From Hubris to Nemesis in Thirty Years.” World Economic Review 1.5 (2012): 13-36. Print.

Johnson, Susan, and Ben Rogaly. Microfinance and Poverty Reduction. United Kingdom: Oxfam, 1997. Print.

Sachs, Jeffrey. The End of Poverty: Economic Possibilities for Our Time. New York: Penguin Press, 2005. Print.

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