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Promoting Development - Microfinance and Fair Trade

Promoting Development - Microfinance and Fair Trade

Hugo Flower

on 8 February 2016

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Transcript of Promoting Development - Microfinance and Fair Trade

Promoting Development: Microfinance, Fair
Trade and The Role of International Financial Institutions

Providing poor families and businesses (especially women) small loans in order to start their own business. The idea is that it can create income and increase self-sufficiency.
Mohammed Yunus -Grameen Bank
This provides an alternative to loan sharks
who often charge high interest rates -
microfinance tends to be transparent
Low interest rates are used only to cover
How are the repayments collected?
What happens if repayments are missed?
Could this crowd out government initiatives?
Fair Trade Schemes
This has been very successful in
promoting small business growth in
Bangladesh and India
Is more debt a good idea?
By the end of the lesson you should:
1. be able to understand microfinance and fair trade
2. be able to evaluate the benefits and drawbacks of each one
Moral Hazard
• Producers are paid a higher price for their product as long as they meet labour and production standards.

• This extra money is then used to fund development programmes, healthcare, education etc.

• The extra income acts as an injection to the circular flow and Harrod-Domar Model

• There could adverse incentive effects – if they are guaranteed a high price, efficiency may suffer.

• Dependency culture – what if fair trade is removed? Or due to a global recession, western consumers can no longer afford it?

• There can be a distortion of the market – if farmers are guaranteed a high price, then there will be more incentive to go into farming which may well be inefficient but is still supported by these high prices. This is fine but what if a farmer is paid more than a doctor?

• Much of the high prices we pay are kept by supermarkets and don’t reach the producers.
Fill in the Development Revision sheet with case studies AND explanation & data
Reduces savings gap
Increases AD and AS
Lowers unemployment
No fiscal burden on Government
Full transcript