Risk-Based Internal Auditing and Micro-Financing

Risk-Based Auditing

Introduction

Through the technical knowledge and personal experience I have acquired so far, I have established that having an internal audit department in an organization is a basic requirement. When one realizes how valuable an audit department can be to a company, he or she can harness the possible added value it can give out by setting up a powerful audit process. Considering internal auditing, the professionals in this field assist companies, to a great extent, by offering them advice on how to best realize both their short-term and long-term objectives. In this part of the paper, I am going to give information about risk-based internal auditing. Risk-based internal auditing is defined as “an audit approach designed to provide assurance that business is appropriately mitigating significant risks to the achievement of objectives” (Jeeban 10). To help understand this better, I will discuss the following; a brief history of internal auditing, the international standards of internal auditing, risk management, and the life cycle of internal auditing

A brief History of Auditing

Internal auditing is a profession that is respected by many and a person who is in it has immense responsibilities. Its origin can be traced as far back in time as seven thousand years ago in 5000 B.C. It is pointed out that “a few civilized communities such as the Chaldaean and the Babylonian Empires were among the first to advance economically and politically and to organize themselves in to sovereign states” (“Internal Auditing” para 1). These two kingdoms engaged in imposing a large number of taxes on businesses as well as on individuals and thus, they set up an “intricate system of checks and balances” (“Internal Auditing”, para 1). They came up with ‘internal control systems’ in order to assist to bring down the level of errors as much as possible and also to safeguard the property of the state from those taxpayers who were not honest.

Considering the United States of America, there has been constant growth and evolution of internal auditing beginning from the time the Second World War came to an end. In the current day, there can be comparing of internal auditing to financial auditing due to a large number of similarities that are linked to one another and “much of the theory underlying internal auditing is derived from management consulting and public accounting professions” (“Internal Auditing” para 2).

Internal Audit Standards

Internal auditing is carried out in the cultural and legal environments which are diverse; “with organizations that vary in size, purpose, complexity, and structure; and by persons within or outside the organization” (“Introduction to International Standards”, para 1). As on one hand differences may have an effect on internal auditing practice in each individual environment, on the other hand, “conformance with the IIA’s International Standards for the professional Practice of Internal Auditing (Standards) is essential in meeting the responsibilities of internal auditors and the internal audit activity” (“Introduction to International Standards”, para 1).

In the case where either the internal auditors or the internal auditing activity is restricted by either regulation or law from conforming to particular parts of the standards, conforming to the rest of the other parts of these standards and suitable disclosure is required. In case the standards are utilized jointly with other standards which are given out by other authoritative bodies, “internal audit communications may also cite the use of other standards, as appropriate” (“Introduction to International Standards”, para 2). In a situation like that, if there are inconsistencies between the International auditing standards and the other standards, “the internal auditors and the internal audit activity must conform to the international standards, and may conform to the other standards if they are more restrictive” (“Introduction to International Standards” para3). The international standards serve a number of purposes which are to;

Delineate basic principles that represent the practice of internal auditing; provide a framework for performing and promoting a broad range of value-added internal auditing; establish the basis for the evaluation of internal audit performance; and foster improved organizational processes and operations (“Introduction to International Standards”, para 4).

The international internal auditing standards’ structure is divided into two; performance standards and attribute standards. The attribute standards deal with the company’s attributes as well as those of the people that perform internal auditing. On the other hand, the performance standards give description of the internal auditing nature and offer quality criteria “against which the performance of these servcies can be measured” (“Introduction to International Standards”, para 4). Both the performance and attribute standards are as well provided to be applicable to all IA servcies. There is also providing of the implementation standards to elaborate upon the performance and attribute standards, “by providing the requirements applicable to assurance or consulting activities” (“Introduction to International Standards” para 7).

Risk Management

Risks are defined as “uncertain future events that could influence the achievement of the company’s strategic, operational, financial and compliance objectives” (“Internal Audit”, para 1). They are the parts of the business that can not be avoided. However, putting in place good risk management can serve at least to offer protection to the organization against losses that can be avoided. Risk management refers to the process of making a decision in regard to which risks “to avoid, control, transfer or tolerate” (“Internal Audit”, para 1).

Basing on personal knowledge, I have found out that the overall responsibility for risk management rests in the hands of the board of directors. The board of directors has the responsibility for making sure that a formal risk assessment is carried out at least once per year “for the purposes of making its public statement on risk management, including internal control” (“Internal Audit”, para 2). There should be acknowledgement by the board of directors of its responsibility for the process of risk management in its statement and for carrying out a review of its effectiveness. The management is “accountable to the board for designing, implementing and monitoring the process of risk management, and integrating it in to day-to-day activities of the company” (“Internal Audit”, para 3). In addition, the management is accountable to the board of directors for giving out assurance that it has done as required.

The risk management concept is a multi-faceted one and calls for the need to have a ‘team-based’ approach. Encouragement is given to the boards of directors to engage in appointing the committees that are committed to oversee the process of risk management. The people who serve as members of the risk committee are supposed to be senior managers and executive directors who are engaged in operational functions of the company together with non-executive directors that have relevant skills and experience.

The aim of risk management is “to create a disciplined, structured and controlled environment within which risks to the organization can be anticipated and maintained within predetermined and acceptable limits” (“Internal Audit”, para 3). There is a continuous process of assessing risks which requires reviews that are carried out on a regular basis since the internal as well as the external changes have great influence on the strategies as well as the objectives of the organization. Those situations that call for the need to have close attention include; “substantive changes to the operating environment, new personnel, new or revamped information systems, rapid growth, new technology, products or activities, corporate restructuring, acquisitions and disposals, and foreign operations” (“Internal Audit”, para 4).

Internal Audit Life cycle

The internal audit cycle starts with risk assessment. The initial step to towards having a concrete successful audit plan is to have comprehensive risk assessment. Risk assessment involves identification of the important areas within an operation which call for auditing. After identifying important areas, the step that follows in the process of risk assessment is to assign “risk rating” to those areas on the basis of particular attributes like “the impact to the company if a discrepancy were to occur within the area, the likelihood that a discrepancy would occur, and the ease with which a discrepancy would be discovered’ (Oprosko 1). The moment the risk ratings have been assigned to all important areas, there will be ranking of these areas basing on the ratings which are labeled as low, moderate or high risk areas.

After “risk rating” all the areas that need to be audited, the next step is to move on to setting up the audit plan. There are several steps involved in setting up or developing the audit plan. One of the steps is defining the audit goals or objectives. Under this step, there is determining of what the goals and objectives will be. The step that follows is to develop the audit plan. This commences with risk ratings evaluation; trying to find out which areas need to be audited first. The time period that needs to be covered by an audit plan is supposed to be over a year. For instance, in a situation where we may have a plan covering a period of three years; the areas that have been rated as being high risk should be scheduled in the first year together with some of the areas that have been rated as moderate risks and a few of those rated as low risk. The moderate risk areas that remain are supposed to be scheduled for the second year together with a small number of the low risk ones. In addition, the high risk areas that need to have a yearly audit should also be scheduled at this time. During year three of the plan, the low risk areas that would have remained are supposed to be scheduled together with a few of the moderate risk areas. In addition, the yearly high risk areas are also scheduled as usual. After the plan has been set up, there is scheduling of the audits for each year basing on resource availability and the business cycles.

After developing the audit plan and the schedule, the performance of the specific audits is carried out. Among the initial things that need to be carried out before an audit of a particular area can commence is to ensure that the audit program for that area is revised from the preceding audit or there is need to develop one in case there has not been a prior audit for that particular area. Customizing an audit program makes it possible for the internal auditor to ensure that all the steps that are required are carried out and there has been dealing with all the risks that are specific to that particular area. By revising the program on the basis of a prior audit makes it possible for the internal auditors to direct their attention on issues that have risen in the past.

Another step which needs to be taken just before the beginning of the audit fieldwork is to give a notification to the area being audited in regard to the audit and schedule the date of fieldwork. The notifying is not supposed to take place more than a few weeks before the audit fieldwork in order to enable the audit to give out results that are accurate to a high degree. Being a part of this notification or in another communication, “a document request list needs to be sent to the area with enough lead time to have the documents available for the I A when they begin the fieldwork on the audit”( Oprosko 1). The request list is supposed to attempt to give all the items which will be needed in performing the audit and these may include such items as reports and some selected transactions that may be used in audit testing. At this point, what is still there is to get the documents, conduct an interview with staff where it is deemed to be necessary, and to engage in following the audit program for that particular area.

After now the completion of the fieldwork, the next move is to go to the evaluation and reporting stages of the audit. There is need to carry out the evaluation of the results that are obtained from the audit tests and reviewing of the documents. There is need to have a review of the audit work for completeness as well as accuracy and there is need to have verification and discussion with the audited area of any discrepancies. Such a step to hold a discussion with the audited department is of great significance since it enables the internal auditor to verify that there is validity in the discrepancies and they are not as a result of the auditor’s oversights. It may as well help in carrying out determination as to whether the discrepancies are either control discrepancies or isolated incidents. In addition, it will offer the audited area with information in order for them to be able to commence on formulating corrective action plans and as a result, there will be no any surprises during the time of issuance of the report.

At this point, the internal auditors will begin developing recommendations for each individual discrepancy or finding that is identified in the course of the audit and hey will in turn engage in the drafting of the audit report to carry out a review. The moment the review of the report is completed, it is now time to go to the audited area for their review in order for them to digest the information and in turn set up reasonable correction action plans that they include in the “management response sections of the report” (Oprosko 2). There is need for these management responses to be reviewed by the internal auditors.

There will be, in turn, incorporation of the management responses in to the audit report and then there will be finalizing of the report. The process of finalizing the report will encompass “a final IA review, running a spell check, obtaining the necessary approvals, and releasing the report for authorized distribution” (Oprosko 2). However, this is not the end of the whole internal auditing process. There is need to have a follow-up audit. The scheduling of the follow-up audit is supposed to be carried out within a half a year after issuance of the report to ensure there has been verification of the correction of the discrepancies. The follow-up audit just requires to address specific findings which are encompassed in the audit report.

Conclusion

Risk-based internal auditing plays a great role in enabling organizations to realize their goals and objectives. By carrying out effective risk assessment and being able to rate them so that the appropriate measures are taken in time, in this regard, helps organizations to run smoothly. I have learned that by setting up an effective internal auditing process, one will demonstrate the value which internal auditing can bring to a company by building a partnership with the operation in carrying out the identification of policy improvements as well as controls and procedures. In conclusion, having a stronger internal auditing process will result in having a stronger control over the company’s assets as well as operations revenues.

Micro-Financing

Introduction

According to Khandker (2001), “micro-finance means transactions in small amounts of both credit and saving, involving mainly small-scale and medium-scale businesses and producers” (Khandker, 2001, p.1). People living in poverty and are not able to set up a small business for the reason that they do not have capital may also derive benefits from micro-financing. At the start of micro-financing, the emerging entrepreneurs were offered small loans to enable them to set up or expand their businesses. It is pointed out that such micro-financing organizations like ‘Opportunity International’ were “one of the first non-profit organizations to recognize the benefits of providing capital to people struggling to work their way out of poverty” (“What is micro-finance?” para 1).

The microfinance organizations have been taking ,as a priority, a move to meet certain needs of women, since about seventy percent of all those people living in poverty across the world are women (“What is micro-finance?” para 1). There is exclusion of the females from such basic needs as education; they are also denied jobs, property ownership and equal involvement in politics. While the micro-financing organizations extend loans to men, a number of them also extend the loans to women; holding a belief that the greatest opportunity for interrupting cycles of abject poverty emanates from the micro-finance programs targeting the women entrepreneurs (“What is micro-finance?” para 1). In this paper, I am going to give the history of micro-financing, its implementation and practices, the advantages it has on society and the future of this sector.

History of Micro-financing

It is pointed out that the history of micro-financing “can be traced back as long to the middle of the 1800s when the theorist Lysander Spooner was writing over the benefits from small credits to entrepreneurs and farmers as a way of getting the people out of poverty” (“History of Micro-financing”, para 1). However, it wasn’t until at the end of the Second World War, with the “Marshall plan”, that this concept had a significant impact.

The current use of the term ‘micro-financing’ has its roots in the 1970s, a time organizations such as the “Grameen Bank of Bangladesh”, having Mohammad Yunus as the micro-financing pioneer, had commenced on setting up and shaping the modern micro-financing industry. Other than Mohammad Yunus, another pioneer in this field is Akhtar Hameed Khan. During that period, a fresh wave of micro-finance initiatives brought in a large number of new innovations in to the micro-financing sector. Experiments were carried out by a large number of pioneering enterprises by offering loans to those people who were underserved. The biggest reason micro-finance is dated to the 70s is that “the programs could show that people can be relied on to repay their loans and that it’s possible to provide financial services to poor people through market-based enterprises without subsidy” (“History of Micro-financing”., para 2). The first micro-finance bank to be set up was Shore Bank which was established in the year 1974 in Chicago.

Timothy Guinnane, an economical historian from Yale, has been researching on “Friedrich Wilhelm Raiffeisen’s village bank movement in Germany which started in 1864 and by the year 1901 the bank had reached 2 million rural farmers” (“History of Micro-financing”, para 3). Basing on this research, it shows that, even during that period micro-credit could pass the two tests in regard to people’s payback moral and the potential to offer the financial services to people living in poverty.

“Caisse populaire movement” formed by Alphone and Dorimene Desjardins in Canada, Quebec is an organization that had concerns about people’s poverty in the society and likewise was able to pass those two tests. In between the period that ranged between the year 1900 and 1906, when they founded the initial caisse, “they passed a law governing them in the Quebec assembly, they risked their private assets and must have been very sure about the idea about micro-credit” (“History of Micro-financing”, para 4).

In the current day, the estimates made by the World Bank indicate that over sixteen million people obtain service from about seven thousand micro-finance institutions across the world. It is pointed out that “CGAP experts means that about five hundred million families benefit from these small loans making new business possible” (“History of Micro-financing”, para 4). In a meeting at a “micro-credit Summit” that took place in Washington DC, the main target was to reach one hundred million individuals that are poor all over the world by the world leaders as well as the big financial institutions.

Proclamation was made of the year 2005 by the “economic and Social Council” of the U.S as being the Micro-credit International year in a call “for financial and building sector to ‘fuel’ the strong entrepreneurial spirit of the poor people around the world” (“History of Micro-financing”, para 5). The “International year of Micro-credit” composed of five objectives and these included to;

Assess and promote the contribution of micro-finance to the MFIs, make microfinance more visible for public awareness and understanding as a very important part of the development situation, ensure that promotion should be inclusive of the financial sector, make a supporting system for sustainable access to financial services and, support strategic partnerships by encouraging new partnerships and innovation to build and expand the outreach and success of micro-finance for all (“History of Micro-financing”, para 6).

The 2006 Nobel Prize was awarded to the pioneer of micro-financing Mohammad Yunus and Grameen Bank as a reward for the efforts they made. According to the press release from nobelprize.org, the Nobel Peace Prize was awarded following their efforts to bring about “economic and social development from below” (“History of Micro-financing” para 8).

Implementation and Practices

At the present, the objective of micro-finance is to offer loans to the underserved and at the same time be able to make a profit. This goal continues to be challenging while a large number of institutions go on depending on subsidization and the poor people are sometimes difficult to reach. However, it is reported that in the year 2003, seventy million low-income people had received services from the micro-financing institutions (Sullivan 5).

Following the example that was offered by the pioneer of micro-financing, Yunus in Bangladesh, micro-financing commenced as a number of experiments were carried out in parts like South Asia and Latin America and these experiments have now spread worldwide; to both poor and rich countries. It is pointed out that “the Grameen Bank is the most well documented initiative of micro-finance and serves as a model for new programs” (Sullivan 5). Those who support it hold a belief that it has served to assist to bring down the poverty levels, improve education levels, and led to the growth of “millions of small businesses” (Aghion and Morduch 136). It is pointed out that the “essence of micro-finance is to draw ideas from existing informal sector credit mechanisms – like intra-family loans, Rotating Savings and Credit Associations, and local money-lenders – while creating a viable conduit for capital infusions from formal sector banks, donors, and governments” (Aghion and Morduch 137).

Micro-finance targets to carry out all these while at the same time evading corruption and the reliance on subsidization. This tends to be entirely idealistic in theory. However, “it has been tried and deemed plausible as seen by its global spread…..yet, after the initial positive reaction, there has emerged a slight backlash as certain programs have been unable to reach self-sufficiency and others have failed altogether” (Sullivan 5). Particular people who oppose it have seen holes in its “idealistic proposal and have attributed its failures as reasons to why micro-finance has not been adopted more widely” (Sullivan 5). However, Murdoch points out that “through further research and innovation, micro-finance still promises to be a unique tool in alleviating poverty” (Murdoch 626).

The micro-finance’s backbone has been the several innovations that were brought about through the Grameen Bank and which have basically turned out to be the primary ingredients to new programs as well as initiatives in the micro-finance industry. Among the most prominent innovations was the “group lending” concept. Group lending has some advantages. For instance, allowing people to form a small group of, let’s say four, enables them to inherently divide themselves into safe borrowers and risky ones. This takes place mostly for the reason that if a person is not able to make his or her payment earlier, the remaining group members have to find ways to assist this person, otherwise the credit for the four members is immediately terminated. This implies that safe borrowers would not want to put themselves in danger by forming groups with the risky borrowers. As a result of this, “in a group setting, local information can be utilized for the outside lender”(Aghion and Morduch 138).

However, it was recently found out that group lending could not be very much reliable and the micro-finance institutions looked for other ways though which to lend to people. It was found out that group lending prevents people who are very poor from benefiting from micro-financing. In a group setting, those people who are considered as being very poor are automatically categorized as risky borrowers and no one is willing to form a group with them making it almost impossible to gain access to the micro-finance sector. Following this, the micro-finance institutions go on being innovative as “time, experience, and different locations deem necessary” (Sullivan 6).

Another ingredient that has turned out to be almost inherent to microfinance is targeting female clients. This has made it possible for the lenders to put their focus on borrowers that have been identified as being poor and at the same time being reliable. According to Aghion and Morduch, there are two basic reasons for focusing on female clientele: “for one, they are known to be more conservative with their investments and, in addition to being conservative, they can be more effective in meeting social objectives” (Aghion and Morduch 143). It is reported that in the year 2004, over 80 percent of the customers of the 34 largest micro-finance lenders of the world consisted of female customers.

To give specific examples of micro-financing practices and implementation, it is reported that around 21 percent of the Grameen Bank borrowers and “11 percent of the borrowers of the Bangladesh Rural Advancement Committee, a micro-finance NGO, managed to lift their families out of poverty within about four years of participation” (“Finance for the poor” 8). Such services as well had a great positive impact on the severity of poverty among those people who are poor. The poverty level reduced to 10 percent from 33 percent among the “Grameen Bank participants” and to 14 percent from 34 percent among the “Bangladesh Rural Advancement Committee participants” (“Finance for the poor” 8).

It is also reported that “without exclusively targeting the poor, the unit desas of the Bank of Rakyat Indonesia have also assisted hundreds of thousands in lifting themselves out of absolute poverty over the past decade” (“Finance for the poor” 8). A survey that was conducted in the year 1988 of unit desa borrowers indicated that micro-finance has had a great impact on the living standards of their families. The results of the survey gave estimates that the borrowers’ net household incomes increased by approximately 76 % and employment rose by 84% with “three years of program participation” (“Finance for the poor” 8).

In general terms, the studies that have been conducted have given an indication that micro-finance services have as well had a positive impact on “specific socio-economic variables such as children’s schooling, household nutrition status, and women’s empowerment” (“Finance for the poor” 8). The micro-finance institutions have as well brought the poor, especially women, in to the “financial formal system” and made them to be able to have access to credit and accumulate some savings and consequently bringing down the level of their household poverty.

However, researchers have come to a general agreement that the “poorest of the poor” have not yet benefited from the micro-finance programs” in a large number of nations partly for the reason that a larger number of the micro-finance institutions do not provide products and services which are “attractive to this category” (“Finance for the poor” 8). Therefore, in order to bring up the level of the general impact of micro-finance on poverty reduction, “it is essential to extend a wide range of servcies on a continuing basis to poor who are still excluded from the benefits of micro-finance” (“Finance for the poor” 8).

The micro-finance organizations can basically fund themselves in four different ways. They include; deposit mobilization, borrowing, issuing bonds and issuing stocks. The major sources of finances for the MFIs are deposit mobilization and borrowing. The MFIs have some strengths which enable them to attract deposits. Some of these strengths include; “their relatively high interest rates, personalized and efficient service, an image of financial solidity, the fact that no commissions or account maintenance fees are normally charged, low minimum amounts for opening account and the local roots of regionally-based MFIs” (Maisch, Soria and Westley ii). However, attracting deposits generates additional operational risks and has a substantial effect on the market risks which the MFIs encounter. These risks include; exchange rate risk, liquidity risk, interest rate risk and the term mismatch risk. It is pointed out that “deposit mobilization has important impacts on MFIs in generating and mitigating each of these risks” (Maisch, Soria and Westley ii).

The best practice in dealing with these risks includes establishing an “asset-liability committee consisting of the MFIs principal managers and coming up with a yearly management plan which encompasses a primary cash flow analysis that is updated at least once per month. The micro-finance organization is also supposed to use “gap models, liquidity ratios, and stress tests to help control these market risks” (Maisch, Soria and Westley viii). The organization is supposed to put in place some contingency plans that can help in dealing with “situations of impaired liquidity and sufficient liquidity reserves” (Maisch, Soria and Westley viii). In order to reduce the exchange rate risk, the MFI is supposed to make loans in local currency to its customers who produce “non-traded” commodities and make loans in foreign currency to customers who produce traded commodities.

Looking at borrowing as being another source of financing, the main sources include; the public sector, donors, local commercial banks, and international social investors among others. Maisch, Soria and Westley established that the most important source of borrowing is the public sector and this is followed by the donors. The advantage of borrowing from the public sector institutions and from the donors is that “it allows MFIs to enjoy interest rates and maturities that would be difficult to obtain from domestic and international commercial lenders” (Maisch, Soria and Westley ii). Obtaining loans from these institutions reduces the liquidity risk as well as the term mismatch risk. More so, the interest rates which are charged by these sources “are clearly positive in real terms trending up toward commercial rates” (Maisch, Soria and Westley ii). This contributes to evading grave distortions within the financial system while preparing MFIs to “increasingly access commercial financing” (Maisch, Soria and Westley ii).

The ever increasing number and expansion of MFIs is an indication that there are benefits in this industry. The MFIs are able to start their operations with relatively smaller amount of funds as compared to commercial banks. They are able to serve a large number of customers consisting of the small scale business people and poor members of the society who are in a position to set up their own businesses. These people are given loans which they use to generate more money after investing and are consequently able to repay the loans, enabling the MFIs to grow. They also receive deposits from their customers which they can in turn issue out to those who are willing to borrow.

Advantages in society

Since its inception it the 1970s and 80s, there has been evolution of micro-financing of a grand vision in which all people all over the world who are in need of either credit or savings can access financial services of a high quality. The servcies like these ones offer one strong tool in the world’s fight against the high levels of poverty. The poor families as well as those that receive relatively low incomes can utilize the financial servcies to bring up the level of the quality of their lives, protect themselves against the potential risks and they can also be able to invest in the future. In the course of setting up the financial institutions that are intended to offer these services, “societies can open their economies to the less advantaged portions of their population” (Rhyne 7).

While there was growth, particularly in the course of the 1990s, it started out to be apparent that this grand scale visions could turn out to be realty at someday. At the present, there is optimistic prediction that in the coming few years, there will considerable achievement of the promise of micro-finance (Rhyne 7).

The Future of Micro-financing

The original vision of micro-financing was; “extending financial services to the majority of the low income population” (Rhyne 22). Basing on the current trends, it can be predicted that this vision will be realized to a considerable level in the course of this decade and micro-finance as we currently understand it, will be a well-established part of the financial system in a large number of nations across the world. As Rhyne points out, in these nations, “it will be difficult to identify a distinct micro-finance sector”(Rhyne 22).

Considering this, the factors which will allow the integration of the micro-finance sector will vary depending on the country, region and area within a country (urban or rural areas). According to Rhyne, the lack of the most important essential ingredients which include; “commercial lending institutions with ample access to capital, the basic level of political and economic stability, and the policy environment suitable for micro-finance will continue to restrict the growth of micro-finance in certain countries” (Rhyne 22). There will be addition of more nations to the current list where there is thriving of micro-finance, but other nations will still exhibit much slower progress (Rhyne 22). According to Rhyne, MENA will continue to be a challenging region, “Africa will show extremes: in some countries, African institutions will be world leaders (e.g. Equity Bank was the first private MIF to issue an IPO) while in countries with severe economic or political problems, little progress will be made” (Rhyne 22).

The gaps in meeting the demand in the nations that are highly populated such as China, Pakistan, India, Nigeria and Brazil among others will diminish considerably. A large number of such countries are exhibiting remarkable progress over recent years. The nations in which demand will continue to be considerably unmet are those nations that are not able to offer the basic level of economic as well as political stability that is essential to do business and those that have policy environments that are not right for micro-finance. The countries that will also be lagging will be those in which the population is hard to access or remote. Rhyne cites such factors as infrastructure and topography among others as the ones that will have an effect on reach. For instance, there is concentration of the China’s population in the coastal regions but most of the poor people are found far away in the rural areas. It is predicted that, in overall terms, the world will turn out to be more urban in the course of this decade, with large cities going on to expand and those that are medium in size increasing in number. There will be continual flourishing more in the “urban and peri-urban areas than in rural areas” (Rhyne 23).

Conclusion

As it has been looked at, the micro-finance institutions have been set up to serve poor people in societies across the world and at the same time making a profit. Micro-financing has expanded rapidly and has served to reduce the poverty levels, improved education and enabled people to set up and expand their businesses. In considering the future, it is predicted that more and more micro-finance institutions will be set up in countries all over the world. However, particular factors will affect the rate at which these institutions will be set up and grow depending on the country or region such as economic activities and access to poor people. This will call for the micro-finance institutions to continue researching and being innovative.

Works Cited

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