url
12
Jun
2014

THE IMPORTANCE OF MONITORING AND ENTREPRENEURSHIP CONCEPT AS FUTURE DIRECTION OF MICROFINANCE: Importance of Monitoring

THE IMPORTANCE OF MONITORING AND ENTREPRENEURSHIP CONCEPT AS FUTURE DIRECTION OF MICROFINANCE: Importance of MonitoringMost of the successful microfinance programs world-wide adopted group microfinance services approach (Asyraf Wajdi, 2008). In Uganda, similar microfinance approach known as FINCA, FOCCAS and PRIDE has led to positive impacts on program-members among the poor who undertook businesses in the form of product accumulation and new services, market enhancement, cost reduction, increased sales, increased household income level and asset accumulation as well as diversification of income sources.
In Malaysia, microfinance program adopted by AIM has been found to be very efficient in enhancing program-members businesses. The effectives of group microfinance program as being practiced by AIM is the result of monitoring approach whereby group-members strictly adhered to “group liability” mechanism. According to this approach, group-members are considered as “social collateral” to replace the actual conventional collateral as group members are not capable of providing their collaterals in the form of physical assets. These credit group-members are made up of individual members that operate their own businesses to generate weekly income.

Based on the “sharing of liability” concept, every group member is responsible to ascertain that each of them repays his\her loans in order to avoid non-repayment status, and everything is done through weekly meetings of group-members. In addition, the group also ascertains that every group-member gets the loans. The group formation and selection of group-members were done on their own accord based on the “social capital” concept. Hence, every group-member has the same objective, practices the same principles and values, as well strengthening their brotherhood and having good knowledge of each other. The characteristics of such group formation help MFI2 to reduce transaction costs on loan delivery and other costs such as costs for group formation and training (includes identification and member selection costs, loan processing costs, documentation costs), costs for collection of loan repayments, costs for tracing group-members who failed to repay back their loans, costs for implementation of terms and conditions and loan procedures of microfinance programs. This means that the costs can be transferred from the MFI to the group-members through stringent monitoring, enforcement as well as the pressure from their own group members. This was stressed by Shanker, where mediators for micro finance such as NGO and Self Help Group in India succeeded in reducing their transaction costs for the banks and also on the part of the borrowers through the adoption of effective delivery of micro credits as well as on-going effective monitoring capabilities.
Morduch also indicated that micro finance program would continue to have positive impacts on poor households and individuals if the programs were done in a well-structured manner and targeted with stringent monitoring. Empirical study by Hartarska showed that in-depth selfmonitoring by MFI such as re-assessment and re-auditing of field work of respondents would result in positive impacts on the achievement of program objectives and respondents capacity to generate business profits. However, few empirical studies have been conducted to assess the importance of monitoring on micro finance in an in-depth and wider context. Empirical study by Ambreen Fatima and Shanker only focused on the function of monitoring from the perspective of enforcement of terms and conditions of micro finance, repayment of loans and the adherence to the conditions of micro finance. Hence, this study aims at looking at the importance of monitoring in a more in-depth and wider context, focusing not only on the function pertaining to the purpose of enforcement of terms and conditions but also to include the loan repayment and counseling and advisory services and the provision of informal training especially in the aspects of entrepreneurship, before and after respondents’ involvement in the micro finance programs. This approach is very appropriate to be taken during weekly meetings with the respondents. Monitoring characteristics of this nature have been undertaken by AIM through its weekly meetings between its officers and the respondents. In addition, this study also attempts to explore new areas and scope for decision-makers to re-assess the importance of the establishment of monitoring body to oversee and monitor the effectiveness of micro finance programs in Malaysia as the basis for the setting up of new micro finance programs in the future.

Most of the successful microfinance programs world-wide adopted group microfinance services approach (Asyraf Wajdi, 2008). In Uganda, similar microfinance approach known as FINCA, FOCCAS and PRIDE has led to positive impacts on program-members among the poor who undertook businesses in the form of product accumulation and new services, market enhancement, cost reduction, increased sales, increased household income level and asset accumulation as well as diversification of income sources. In Malaysia, microfinance program adopted by AIM has been found to be very efficient in enhancing program-members businesses. The effectives of group microfinance program as being practiced by AIM is the result of monitoring approach whereby group-members strictly adhered to “group liability” mechanism. According to this approach, group-members are considered as “social

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Kevin J. Brandon

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