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(Newsletter Title) (Page 1)This page may be used for                                                                                     XXXXXXXXXXT221 Final Examination (Alternative Take-home)Subject number: Fin204Subject name: MicrofinanceExam date: Open: 11 am Monday 4th October 2021Submit by: 11 am Tuesday 5th October 2021Exam condition(s): · This is an open-book examInstructions for students:· Record your responses on this exam paper using Word· Save the document as a Word file on completion· Upload to turnitin at the end of exam (by 11am Tuesday 5Th October 2021)· The assessment is worth 50 marks of your grade· Please complete the following information … (Student Number:Last Name:First Name:)By uploading this exam, I declare that the exam question answers are my own work and I have not sought or obtained help from anyone else.There are five (5) questions in this Exam. You must type answer to each question (or part of each question) sequentially. Question 1                                                                                         [Total 12 marks]                                                                                                                                  a. Evaluate the two divergent challenges faced by microfinance institutions (MFIs). Identify and explain the measurements used to assess the performance of MFIs in respect to these two challenges. Choose a region, such as South East Asia, Sub-Saharan Africa, Central America etc. Outline how MFIs have attempted to overcome these challenges in that particular region. In your opinion have they been able to succeed over the last decade?  Provide data to support your analysis XXXXXXXXXXmarks. The following data is from a microfinance institution (MFI) from Indonesia relating to the components of their cuent micro-loan interest rates: · Capital costs = 6%· Operating costs = 7%· Tax expenditures = 3%· Defaulted loans = 3%· Net profit after tax = 5%.Calculate the effective sustainable interest rate. Show all calculations. (Show answer as a percentage, coect to 2 decimal places.)                                                             XXXXXXXXXX2 marksQuestion 2                                                                                       XXXXXXXXXX8 marksAnalyse the concepts of social performance and social impact.  Explain with examples why microfinance places emphasis on social performance. Question 3                                                                                         XXXXXXXXXX10 marksSince inception the microfinance industry has been subjected to a range of criticisms. In Assessment 2 you researched the operation of microfinance in two different countries in recent years. Select one of the countries you identified in your Assessment 2 (preferably from Asia, South America or Africa), select any four reasons for criticism, and evaluate if any of these criticisms apply to the microfinance industry in that country.  Provide data to support your analysis. Question 4                                                                                                        [Total 10 marks]You have invested $90,000 in a share portfolio that has a return of 11.5% and a standard deviation of 15%. You are now considering investing $10,000 in a microfinance asset and adding this asset to your portfolio. The microfinance asset has a return of 23.25%, a standard deviation of 32% and the covariance between your share portfolio and the microfinance asset is – 0.10. a. Calculate the return, variance and standard deviation of the new portfolio. Show all calculations. (Show answer as a percentage, coect to 3 decimal places.)                   XXXXXXXXXX5 marks. Was it effective adding the microfinance asset to your portfolio? Analyse why the return and risk of the new portfolio have changed and if you have achieved diversification by combining the microfinance asset with your existing share portfolio.                                        XXXXXXXXXX5 marksQuestion 5                                                                                          XXXXXXXXXX10 marks             Many consider microfinance to be crisis-proof. What are the competing arguments in favour of and against this sentiment?  Provide data to support your analysis. END OF FIN204 FINAL EXAM PAPERT319 Final Examination: FIN201 UG - Investment Management                                                         XXXXXXXXXXPage 1 of 16                                                      MG - T221 FIN204 Take home Final Examination Microfinace

Ayushi · Accepted Answer

3
T221 Final Examination
Contents
Question 1:	3
A.	3
B.	4
Question 2:	4
Question 3:	5
Question 4:	6
A.	6
B.	7
Question 5:	7
References:	10
Question 1:
A.
The challenges faced by microfinance institutions are:
1. Interest rates are higher as compared to the mainstream banks: 
The success in the financial terms is not much good when a comparison is done from other commercial banks. The interest rates charged on the microfinance loans are much higher than what is being offered by the commercial banks (Finezza, 2021). The measurements that can be used to analyze the performance are operating expenses, average of the people who are adopting microfinance loans and rates that are charged from them on such loans, comparing the interest rates with other bank rates and checking if there is any cap limit for interest rates imposed by the government on such loans. In south East Asia the interest rates have declined very much if a comparison is done from the past years. It is seen that earlier microfinance interest rates were very high which are brought down to 26% by lowering the operating expenses from 24% to 15% of the average loans. 
2. Over-Indebtedness:
As the microfinance institutions lend loans to the backward and poor sections of the country, so that the standard of their living can be improved and poor people can start their own small businesses. This leads to over indebtedness faced by the institution as the loans are given without collateral (Finezza, 2021). The factors through which performance can be analyzed are multiple borrowings done by the clients, improper risk management processes, loans are provided without any collateral, increased cost of monitoring. In south East Asia the microfinance institutions have started raising money by collaborating with various funding websites because of which the cost of maintenance would be reduced.
In comparison to the last decade microfinance institutions have progressed and implemented many policies and adopted new methods through which the challenges faced by microfinance institutions have been reduced.
B.
Effective sustainable interest rate:
Operating cost=7%
Tax rate=3%
Interest rate= 7*(1-0.03) = 6.79% or 6% which is the cap rate, lower of the two would be the effective substantial rate of interest. Therefore it would be 6%.
Question 2:
Social performance: 
The concept of social performance says that the social mission of an organization should be brought to actual practice or it should be made reality with accepted social values (What Is Social Performance?, 2021). For achieving good results in social performance it is the responsibility of an organization that the social performance should be managed in the same way and with same efforts as its financial performance is managed.
Social impact:
The concept of social impact can be defined as the impact that any activity or an action, programme, project or the policy will have on the community and people who are related to such social activities. While planning or doing a social investment, it is necessary to have a good social impact (Social impact. What is it? How do I measure it? | Good Finance, 2021). The investors go into social investment with an objective to achieve positive social return and with that good financial returns are also required.
Microfinance has more emphasis on social performance because microfinance was formed with an objective or mission to provide loans and funds to that section of the society which is poor and backward and does not have access to other commercial banks.

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