The Role of Microfinance in Boosting SME Growth: A UK-China Comparison

Desklib provides past papers and solved assignments. This report analyzes microfinance's impact on SMEs in the UK and China.

INDIVIDUAL PROPOSAL

Table of Contents
INTRODUCTION............................................................................................................................. 3
RESEARCH QUESTIONS.................................................................................................................. 4
LITERATURE REVIEW......................................................................................................................5
COMPARE AND CONTRAST THE FINDINGS OF TWO STUDIES........................................................8
CONCLUSION................................................................................................................................. 9
REFERENCES.................................................................................................................................10
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INTRODUCTION
The role plays by the small and medium business enterprises in the economic development of
the country as it creates employment opportunities to generate revenue and incomes and also
eradicate poverty. On the contrary, microfinance has emerged as the most important tool to
promote business development. It improves the working capital thereby acting as a source of
business growth (Duvendack et al., 2011). Microfinance has become of the prime reasons for
the expansion of small business into medium and large organizations. It is a financial resource
to supply loans, savings and other financial services to low-income individuals and small
medium enterprises. This research proposal is presented to identify the impact of microfinance
on the growth and development of SME in the UK and China.
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RESEARCH QUESTIONS
1. What is the level of influence of microfinance in the progress and development of SMEs
in the UK?
2. What is the level of influence of microfinance in the growth and expansion of SMEs in
China?
3. What are the similarities and dissimilarities in the influence of microfinance in the
growth and development of SMEs in both the UK and China?
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LITERATURE REVIEW
SME FINANCING IN THE UK
A research was carried out by Harrison and Baldock (2015) in order to identify the emergence
of new forms of SME finance rather than equity finance sources and traditional banking after
the global financial crisis (Harrison and Baldock, 2015). In this research, the Centre for
Enterprise and Economic Development Research (CEEDR) at Middlesex University Business
School organised a conference in 2014 in order to provide a well-timed forum for principal
practitioners, academics as well as policy markets to distribute the current research as well as
practitioner knowledge to explore the finance gaps.
It also focuses on identifying the best tool to address the financing requirements of small
businesses that have high potential of growth. The global financial crisis began with the sub-
prime mortgagee crisis in the US housing market in 2007 and concluded with the downfall of
Lehman Brothers in 2008 (Harrison and Baldock, 2015). It led a profound impact on the SME
sector with reference to boundaries on the capital source from financial institutions as well as
constrained on the demand of finances as the trade implication s were faced by SMEs which
resulted in an economic recession.
It was observed that the SME can be perceived to be the key player in industrial reformation
and innovation, wealth generation plus economic growth. The influences of the governance
characteristics and country institutional on the performance as well as the resilience of
microfinance institution were examined by Silva and Chávez in a 47- country study (Harrison
and Baldock, 2015). It was found that the microfinance industry was considerably open to the
global financial shocks of 2008 and 2009.
The global financial crisis had least affected to the microfinance institutions that operated in
countries with strong institutional quality and also in those countries where constraints were
imposed through resourceful behaviour thereby sustaining confidence in the rule of the game
(Harrison and Baldock, 2015). Thus it was concluded that a strong framework for
institutionalising the microfinance is critically required due to the increased unification of
microfinance in the international financial system as well as its corresponding increase in
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vulnerability to global financial crisis. This framework will create a facilitating environment for
microfinance institutions as well as micro-entrepreneurs. The SMEs, as well as overall
economies performances, will be impacted by any continuous constraints in the supply of as
well as effective demand for funds and finance for SME sector (Harrison and Baldock, 2015).
SME FINANCING IN CHINA
In another study by Nichols (2004), a case study approach was used in it to assess the influence
of microfinance on the lives of poor people in China. A poor central-Chinese village was
undertaken as field research in which microcredit program was being operated for 7 years.
Socio-economic changes were observed in an abovementioned village in comparison to those
villages that have no such program (Nichols, 2004). It was found that the lives of the borrowers
had several positive impacts due to their participation in the program specifically in term of
economic security as well as self-satisfaction. The villagers commonly expressed a sense of an
increase in confidence in them and enhancement in their abilities in managing their own
economic affairs.
It was also found that the income of regular borrowers based in the village was more than three
times faster than the incomes of non-borrowers villagers. It was also noted that the poorer the
borrower is the speedy increase in their incomes. This indicated that wealth disparities among
the borrowers were relatively reduced through the contribution to the program (Nichols, 2004).
The high priority for borrowers was the investment in as well as income sources stabilisation,
specifically, the greatest proportion of their profits were reinvested by poorer borrowers into
activities that generate income.
This study also identified follow-up impacts such as increased spending on health and education
improved living conditions and an increased sense of wellbeing. It also reduced the
phenomenon of the villagers to leave the village in search of work which led to a declined
burden on the women and also increased opportunities to socially interact within the families
and also the village. It was concluded that repayment regimes in microcredit programs are
required to be tailored according to the income profiles of individual borrowers (Nichols, 2004).
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Program effectiveness can be optimised by making use of existing social networks in order to
tailor the microfinance programs in China to the unique socioeconomic characteristics of
Chinese villages.
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COMPARE AND CONTRAST THE FINDINGS OF TWO STUDIES
The first research was focused on understanding the challenges and significance of SME
financing in the UK after the global financial crisis while another study was focused on the
impact of microfinance on the lives of poor people in rural China. The similarities in both the
studies were that both studies agreed on the importance of microfinance in the global financial
system. Microfinance plays a crucial role in not only developing the small and medium
enterprises in rural regions of the UK and China. Microfinance has emerged as an effective
financial tool for SME in developed as well as developing countries (Hussain et al., 2006).
It fulfils the financial demands and needs for SMEs thereby improving its economy along with
the country’s economy. Microfinance helps the rural and poor people to engage in income
generating activities and improve their standard of living. It improves the socio-economic
environment in the rural region (Harrison and Baldock, 2015). The differences in the studies are
the first study was focused on the impact on microfinance industry and institutions due to
economic crisis around the world in 2008-2009 while the second study was focused on poor
central Chinese village in which microcredit programs operates (Nichols, 2004).
Another difference is first study focuses on framing strong framework to institutionalise
microfinance to create enabling environment for microfinance institutions and support
economies of scale, outreach and industrial sustainability (Nichols, 2004) whereas second study
focuses on tailoring the repayment regions in microfinance programs to individuals income
profiles and to unique socioeconomic characteristics of Chinese village in order to optimise
program effectiveness (Harrison and Baldock, 2015).
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CONCLUSION
Thus it can be concluded that microfinance institution is emerged as an effective instrument to
provide funds and financial assistance for growth and development of SME and an honourable
substitute for informal credit. It also offers easy accessibility of services to directly impact sales,
profit as well as physical assets development of SMEs.
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REFERENCES
1. Arbolino, R., Carlucci, F., Cirà, A., Yigitcanlar, T. and Ioppolo, G., 2018. Mitigating
regional disparities through microfinancing: An analysis of microcredit as a sustainability
tool for territorial development in Italy. Land Use Policy, 70, pp.281-288.
2. Duvendack, M., Palmer-Jones, R., Copestake, J.G., Hooper, L., Loke, Y. and Rao, N., 2011.
What is the evidence of the impact of microfinance on the well-being of poor people?.
3. Harrison, R.T. and Baldock, R., 2015. Financing SME growth in the UK: meeting the
challenges after the global financial crisis.
4. Hussain, J., Millman, C. and Matlay, H., 2006. SME financing in the UK and in China: a
comparative perspective. Journal of Small Business and Enterprise Development, 13(4),
pp.584-599.
5. Nichols, S., 2004. A case study analysis of the impacts of microfinance upon the lives of
the poor in rural China. Unpublished master’s thesis, Royal Melbourne Institute of
Technology University, Australia.
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