We have already known that after the recovery of a global economy in the last several years there is an establishment of banking and micro-finance which have been vibrantly operating in the developing country. Micro-finance is an integral part to alleviate the poverty of people. However, meanwhile, there are some individuals became terrible debtor because of consumption of loan in a wrong purpose.
For years before the presence of micro-finance loan services, the community people went to borrow a de-facto loanshark from the private money lenders. Some were in deepwater of debt and being insolvent. As a result, the lenders carry out a foreclosure of property like land or rice paddy. It increasingly makes them be poorer because most local people live by depending on farming but now they lost land to cultivate.
These days, micro-finance services are very popular among vulnerable community people due to their interest is reasonable to meet their need. Yet, there are many institutions which serve the loan delivery.
They noted that the micro-finance institutions have been playing a key role to contribute to the reduction of poverty amidst the government’s national plan, attributed to developing small business, developing of agriculture in the rural areas. Why that community loan is important in partaking in the development of a poor country. Because of the businessmen are able to get the loan in order to run or scale up the business within decent interest.
In theory, the growth of the banking sector and microfinance institutions is contributing to reducing poverty of poor people in the countries in this world. But for some cases of the rural area in the poor country, the borrowers from loan establishments are the victim because they increasingly plunge into a poorer situation. Why was that?
The expert and socioeconomic analyst explain to that because of some reasons, first, the lenders quickly approved to grant the loan to borrowers but without thorough assessment to the family environment. There is no clear explanation from the credit staff to the borrowers on how to use a loan for a specific purpose based on a community plan effectively. And the market of financing service is very competitive which affects the poor community regions.
Here is an example of wrong using of the loan, when they had received loan then they use it to buy other things instead of running or expanding their small business to generate income for the family. This case forced them to sell the land or property like cows and buffalo for paying back to the micro-finance agent and then they were pushed into the worst poor living.
Therefore, in order to gain mutual benefits both financing agent and community people must firmly ensure that the loan has to be used in proper and effective ways in expanding or running a small business and it was envisaged that the investment shall take the profit for alleviating poverty obviously.
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