22 Microfinance Credit Microfinance institutions provides small loans and other

22 microfinance credit microfinance institutions

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2.2 Microfinance Credit Microfinance institutions provides small loans and other financial services to micro-enterprises in emerging economies. It is an effective way of enabling people to help themselves by making an important contribution to grow their financial capacities and raise their living standards. Microfinance credit institutions provides financial services for entrepreneurs and small businesses in need of access to banking and other related services. The two main mechanisms for delivery of services to such clients are relationship-based banking for individual entrepreneurs and small businesses as well as group-based models where several entrepreneurs come together to apply for loans and other services as a group. Micro-finance credits play a pivotal role in economic growth of Baringo Town. Banks and lending institutions provide the services that allows people to save and make use of available assets and resources which further supports and strengthens the economy of the county. In the underdeveloped communities, the role of microfinance institutions is to provide credit access and financial services needed to develop income earning businesses. Within any society, microcredit financial services provide the means for individuals and businesses to obtain credit and manage available assets on a continuous basis. Microcredit fits best those with entrepreneurial capability and possibility. Microfinance is a self-empowerment since it enables businesses to increase their income. Nowadays, the mainstream finance industry was counting microcredit project as a source of growth. Given the asymmetric information problems (pre-and post-lending), high-risk environments and the presence of important transaction costs, banks are usually absent in the rural world in developing countries. This has observed that banks charge high interest rates and 7
that they fail to serve all potential borrowers due to the high risks involved (Ahmed, Adams, Chowdhury and Bhuiya, 2000). Most microfinance programs make use of some forms of lending schemes such as peer selection and monitoring techniques as well as regular public repayments and joint liability. With groups lending schemes and explicitly using joint liabilities, the same applies to any mechanism that employs some peer screening methods, monitoring or enforcement (Barnes, 2001). Under joint liability, individual borrowers have to form groups to apply loans and all group members are held collectively responsible for the repayment of each other's debt. Various economic analysts have proposed various explanations for the new opportunities that this mechanism offers (Coleman, 2006). 2.3 Financial performance of micro-business enterprises Financial performance is a subjective measure and evaluation of how well a firm can utilize its assists from its primary mode of business to generate revenues. The term is also used as a general measure of firms across the same industry or rather to compare industries or sectors aggregation.

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