capital [illegal housing]Ê. This has very large ramifications on their businesses because ÂLegal property gives you the tools to produce surplus value over and above its physical assetsÊ (Soto, 2001). Without any legal property or possessions there is no collateral in commercial deals and all transactions have to be made in cash. This confines potential customers to the local community where social contracts exist to mitigate risks. The poor therefore miss out on the large profitable world of commerce that lies beyond their local community. Furthermore, in the absence of legal protection even some microfinance banks are able to exploit their desperation and vulnerability. By incorporating them in the legal system such exploitation from the microfinance industry would be prevented. It is unlikely that the poor can afford high priced lawyers or the time to gain this recognition so therefore we need a simplified and expedited form of legal recognition to be created by governments. Whilst this may seem ambitious, in the past there have been many attempts in developing countries to incorporate extralegal activities under the legal framework such as in Latin America where
there have been many property reforms to acknowledge property of the poor. This highlights that there is a will, and soon the way will be found.
Conclusion
Microfinance may not have lifted millions out of poverty by transforming their businesses but it has delivered on what it set out to do: provide financial services to the poor. Amongst other positive externalities, it has smoothed peopleÊs household incomes, empowered women, reduced the reach of loan sharks and led to increased self- employment. MicrofinanceÊs success has been stymied by the microfinance industry, the restrictive legal structure and suboptimal usage of loans but these can be overcome by a micro-MBA and legal recognition. Not only will the establishing of successful businesses by the poor benefit the owners but also these businesses will lead to a local multiplier effect and raise living standards for the community. In the past microfinance was able to open up the poor to the possibilities of business and in the future, with a micro-MBA and legal recognition, it will allow the poor to capitalize on them.
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