Micropayments And Microfinance Harvard Case Solution & Analysis

INTRODUCTION

Microfinance is a broad term which is related to the low income clients. New techniques are being developed under this broad term to deliver financial services that are especially developed for low income clients specifically for women. Low income clients have no long access to these services; therefore, these services are especially created for these low income clients. There are also many actors and institutions in different countries of the world such as the microfinance institutions (MFIs) and other government officials along with the international development agencies who are focusing to mitigate the risks related to the financial systems of the world. However, the interests of all of these groups also vary considerably. Microfinance is a broad term and included within it is microcredit which is simply the provision of credit to low income clients. This paper focuses on the role of micropayments and microfinance in the lending industry with respect to low income clients. The second focus of this paper is on crowd funding and its relation with peer to peer financing.

MICROFINANCE

Small businesses need capital and money to grow their businesses but they lack the necessary resources to access the banking services and other types of services related to the banks. Therefore, microfinance is basically a source for these small businesses to avail the financial services which otherwise are not possible for them to achieve. The microfinance serves to be the source of the financial services for these low income clients in two ways. The small low income clients can avail these services by forming group based models. Under the group based models many entrepreneurs or low income clients form a larger group and then they apply for a loan together. In this way these acquire all the financial services. The other way is that they apply for these services through relationship based banking for small businesses and individual entrepreneurs.

The concept of microfinance in some of the countries states that it relates to the provision of financial services to low income employees. This concept is more common in South Africa and this is also very much similar to retail finance models that are prevailing in mainstream banking. Apart from this concept, microfinance in some countries is defined as a separate world which is related to not only the provision of financial services to low income clients, but this also means the permanent access of near-poor households to appropriate and a vast variety of financial services and other such services which include funds transfer, insurance and savings. Most of the people also have the belief that such efforts will help the poor people to come out of poverty. The emergence of microfinance has also led to the development of the economy and it proves to be a strong support for the small businesses and the entrepreneurs. Refer to the figure in Appendix 1.

MICROPAYMENTS

Micropayment is defined as a very small transaction that usually occurs online and this is for a very small sum of money. This is basically a financial transaction. There are also different meanings of micropayments with respect to Visa, Paypal and other practical systems. For instance, Visa defines a micropayment as that transaction that are under the limit of 20 US dollars. On the other hand Paypal defines a micropayment transaction as that one which is under the limit of 12 us dollars. In this way the costs of the individual transactions is reduced.

Micropayments can only be made through a special type of system which are too small and that are not processed through the credit card companies. Micropayments have long emerged in the e-commerce area. The micropayments concept has replaced other subscription models that normally demand huge upfront payments. Therefore, the usage of micropayments concept is gaining popularity. To make this system more successful it is essential for these schemes to be more secure, easy to use and reliable. Due to the difficulties that are encountered in authenticating bank accounts, downloading software and the constant monitoring of all the charges, the implementation of these micropayment schemes seems to be more easy and beneficial.

IMPACT OF MICROPAYMENTS AND MICROFINANCE ON PEER TO PEER LENDING INDUSTRY

Studies have shown that the concepts of micropayments and the provision of the financial services to the poor under the term of microfinance helps the poor people to meet their basic needs and also overcome the risks they are facing. It mitigates the exposure of these risks for these people....................

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