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Development Finance Essay

5941 words - 24 pages


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The United Nations Secretary General’s report on the role of DFIs in the eradication of poverty in 2008 clearly states that there is ample evidence that access to credit has given many poor people the means to increase, diversity, and protect their sources of income to come extent. This view was reiterated by the UN General Assembly in resolution adopted in March 2009 stating that Development Finance, in particular Development Finance Programmes, has succeeded in generating productive self-employment and proved to be an effective tool in overcoming poverty and reducing the vulnerability of poor people to crises and has led to their growing participation, in particular, the participation of women, in the mainstream socio-economic and political processes of society.
According to the economic survey of Pakistan 2009-10, 62% of the whole population of Pakistan resides in rural areas. It is the second largest sector, accounting for over 21% of GDP, and remains by far the largest employer, absorbing 45% of the country’s total labor force. The agriculture sector is comprised of entrepreneurs that have potential to grow but they didn’t have finance to invest, for this purpose they are provided with development Finance from the DFIs, they can take from the commercial banks according to different introduced schemes and requirements for granting loan by the State Bank in order to facilitate entrepreneurs. In FY 2009-10, development expenditures are Rs. 616.5 billion, i.e. 21 percent of the total expenditures.
Many studies have been conducted on SMEs, NGOs, Microfinance, by many researchers and organizations. It is not possible to discuss all the publications in this short report except discussion will on real great scenarios.
“Credit without collateral is fundamental right of poor”, Dr. Muhammad Yunus (1999), the originator of the Microcredit or microfinance.
“Introduction of entrepreneur whose motivation is not to profit but “do good”, a motivation that will not lead to profit-maximization but to “social business”, it operates as a business enterprise, with products, services, customers, markets, expenses and revenues” by Dr. Muhammad Yunus (2007).
“When a Social business owner borrow some money from Profit making organizations and nonprofit organizations, they have to generate enough earnings to meet their costs incurred in full, so social business is cause driven rather than profit maker” by Dr. Muhammad Yunus (2010).
“Borrowers of finance can make their group (partner) in the same region to get finance without any collateral, at high interest rates because of poorness of the borrowers, they can create joint-liability to make payment against the borrowed amount, person having riskier project will be compensated by the partner with less risky project”, by Maitreesh Ghatak (1999).
“Peer group formation reduces interest rates due to ‘collateral effect’, namely, cross subsidization amongst borrowers act as collateral behind a...

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