Micro Financing And Poverty Alleviation

Micro Financing And Poverty Alleviation


Poverty alleviation is one of the significant components of UN sustainable development goals. The provision of microfinancing has changed the attitudes towards helping the poor and in some countries, flows of credits would normally be attempted to assess the outreach. More than half of the working-age population about 2.5 billion don’t have access to the financial services regulated by financial institutions. 

Since the 1990s poverty alleviation has become a centre among international development as such one-fifth population somewhere leaving in the poverty. Because of this many of the working-age population are dependent on the informal money lender. This even uplifting demand of financing micro-entrepreneur for job creation.  

Currently, there are 3100 microfinancing institutions providing loans to 100 million clients to so they can cross poverty line. It emerges as a promising way focusing on providing credits to the poor(Banerjee & Jackson, 2017). 

For the fastest rapidly moving economy, microfinancing is seen as significant innovation since the attempt of reducing poverty seems hopeless before the 1990s. Aftermath there has been a surge in interest in microfinancing noted in the past particular consideredas an effective mode to reach the rural poor also addressing the basic needs of development. This article reviews the several aspects of microfinancing, identifies social capital role in developing entrepreneur capabilities of the poor and highlighting the way microfinancing serve as a useful tool in terms of alleviating poverty.


Credit plays a major role in reducing the poverty. In the majority of the developing countries, operational holdings are marginal and small one is not economically viable. However, the perpetual poverty and lack of credit remained the major constraints in the uplifting economics. 

Poverty is a major hurdle even in the United States the poverty industry worth $33 billion a year comprising payday loans, credit card companies, pawnshops, and microfinance providers generating business from the poorest segments. In the face of development, ending poverty is among the top 17 sustainable goals set by the United Nation. According to Banerjee and Jackson, 2016 and various policymakers, microfinance encourages entrepreneurship, empowering women, increasing access to education and health facilities, building social capital among vulnerable and poor communities. In the last few years, many countries such as Lebanon, Mexico, Bosnia, Morocco and Andhra Pradesh{state of India} where the entire microfinance industry was collapsed in 2010. In some cases, it is also noticed, the inability to repay the microloans are also linked with hundreds of suicides. Such raises the concern, are microfinance entrepreneurs enough capable to lift the people above the poverty? Does it mean microfinance instead of alleviating poverty exacerbating poverty? 

Definition Of Microfinance, Key Concepts And Objectives

Simeyo et.al, 2011 defined microfinance as a provider of financial services that is loans, insurance, savings, transfer service or low-income holders offering mobilization of credits, training to poor that in turn enable them to start their business venture. However many researchers and assignment help experts argue basic business skills should be accompanied by training to handle the credits and improving the capacity of the poor to use funds.

A microfinance service offers loan facilities, saving opportunities, insurance for health and business assets to the poor who are largely ignored by commercial banks. Microfinancing helps the poor for the smooth working of business assets largely supporting the women to come out the poverty and creating their own individual identity. Many women who are being adhered to by the micro-financial institution have been accepted the microfinance as a powerful financial tool.

Microfinance Objectives

There are following objectives have been made by the MFIs in developing countries- Alleviating poverty, Eradicating extreme hunger, empowering women, reducing child mortality, improvisation of maternal health, creating income-generating activities, building assets, stabilization of consumption, encourages new businesses, at last, come up with the global financial system to meet the demand of the poorest people. 

Most of the MFI achieves the above-mentioned objectives using microcredits, micro-insurance, micro-savings, and money transfer

Historical Context OF MFIs

Microfinance originally practised with microcredits providing very small loans to those who don’t have a steady income, any credit history and collateral. It aims at kickstarting the entrepreneur who doesn’t have backlinks with the other business,

Mohammad Yunus received the first Nobel prize in the history of microfinance creation for its successful idea of microcredit, introducing the concept of Grameen Bank. With its experimentation, the world is capable to understand the real potential of poor people, their training capabilities and generating income with ease. Therefore it can be said, Microfinance is a great deal for those who are enough dedicated to reduce the poverty or want to come out of it. Earlier, traditional banks cater the loans to rich people expanding the debates why the poor don’t get the chances? Through the innovation of microfinancing, it becomes easier for poor to access the credits.

In comparison to Yunus MFIs model, Bolivian intervention was typically for the urban rather than rural and much more focused on micro-enterprises. Bolivian micro-credit concepts were itself seen as a business that is nothing but the branch of commercial banks. Microfinancing in Latin America developed under some circumstances collapsing populist regimes. In this condition, Banco Sol addressed this problem and introduced the concept of extraction of urban unemployment with coping up with MFIs. Aftermath, MFIs spread all over the world, working on a different backgrounds, regimes, policies and identifying poor people both economically and financially. There is much more about MFIs that you can explore at SourceEssay online assignment help platform.

Microfinance Role- Reducing Poverty 

There are significant attempted came into the picture made at the global and national level to alleviate the poverty using microfinance programme. But what is poverty, how it is measure are aggressively contented issues? One of its aspects considered as it materialistic demand and the other consists of much broader permits of well being. According to Mecha, 2017, there are many reasons why the poor are deprived of the basic resources even they are also unaware of their rights, information about the structural information given by the public institution, they lack political prominence, education and skills required to improve their livelihood. In the majority of the cases, they lack the sources of income provided by the government.

The majority of the women of developing countries are not given basic financial services. Most of the time poor are not included in the financial help as the formal means considered them unsuitable. In this regard, Microfinance considered a vital tool aiming to break the vicious cycle of poverty characterized by low income, low investment and low savings. 

There is no scepticism that lies in the statement in order to make improve the lifestyle, fulfilling the basic demand of livelihood, you need to have capital as this is the only ingredients that bring the material to you, provide an access to education and health services. Many policymakers and essay helpers said the real idea behind microfinance inception was to help the weakest community of the society which in this case are poor.

There is some definite requirement of micro-entrepreneur needed in rural areas including communication, power, storage facilities, settling disputes, legal action for initiating agency and much more. Beyond the infrastructure, microfinance entrepreneurs need access to information on marketing trends. Some poor will be able to move above the poverty line with the help of MFIs but in that case, they have to help themselves at very first. But some people required constant financial support because they are unable to start a business this can be happened either because of a lack of business skills, which would eventually increase their income. 

Importance of Microfinance

Before the 1980s, the presence of informal micro-enterprises, street vendors, market stalls providers of transportation services etc considered economically dysfunctional. Micro enterprises were thought to be a concealed form of unemployment. Now microfinance supporting these microenterprises with the microcredits that they can use to expand their business. Through microcredit, the government are trying to reducing poverty this generating more opportunities for self-employment. The following ways suggested by the assignment help online experts beneficially reducing the poverty to some extent-

Jobs Loading

Unemployment is the major problem almost every country be it developing or non developing are dealing with. Through better services of microfinance, the poor can get the opportunity to live their life with self-respect. It is often argued, improving financial services for the poor build up productive assets. Many researchers said microfinance combat the market failure creating economic power thus, in turn, recognize the poor in a social group. 

Mutual Benefits

Microfinance provides a win-win proposition where both the financial institution and the poor will be benefitted. This also creates excitement at the level of world economic development. Many studies found poor get benefitted from the MFIs and MFI get benefits from the money they lend to the poor. In terms of household, it would increase the net capita of annual of every family. 

Consumption Increases

Market failure somewhere linked with both employment and income of the individual. Besides that unproductive use of human resources and capital also the reasonable cause behind the increased poverty. Most of the individual are unable to buy products from the market because of the lack of finances. Microfinance services such as credit, loans and saving opportunities would have a direct impact on the GDP. Organized microfinance is essential to alleviate poverty, economic growth. Thereby to reduce the poverty, we need to eliminate its major factors, such as low skills, hard economic times, low prices, high prices of commodities, lack of entrepreneur skills and much more. To know more take assistance from SourceEssay based assignment maker team.

Productivity Increased

Yunus had explained microcredit exert a positive influence over the economic development of Bangladesh, each household income and their consumption. Similarly, microloans provided in the US supporting small businesses as a result 67% of the borrowers have shown an increase in their income level. Many studies have shown the creation of microcredit facilitated the growth of the business and demands of goods and services that further increases productivity.

Criticism of Microcredits

In accordance with Copestack 2002, microcredit favours the rich clients who would get betters benefits from the credits also lead to exclusion of the poor from society. He also argued, microfinance treated the symptoms of poverty, not poverty collectively.

Many times, it has been observed clients are using microcredits for consumption not to start the business, which means settling extra debts would be higher. Many borrowers use the money to fix personal equipment, apart from that microfinanciers would have very low information about the marketing trends. Many economists believed microcredit increases the external burden infants raises the concern for the increased suicidal incidents in countries like India.

The five major faults have been identified in the MFIs-

It approaches a single sector to allocate the funds

Micro edits will be irrelevant for the poorest people

An over-simplistic definition of poverty is used

There is no overemphasis scale that has made

Merely a change takes place in regime despite the huge loss


Through the study, we have discovered MFIs has a positive impact on the poverty alleviation index. That means if the one stake would be increased, poverty alleviation will be enhanced automatically, In this article, we have defined the role of microfinance how it is supporting microenterprises with the microcredits that they can use to expand their business. We identified through microcredit, the government are trying to reducing poverty this generating more opportunities for self-employment. However there is major criticism found to be associated with Microfinance concepts including undefined microcredits utilization for the consumption not to start the business, which means settling of extra debts would be higher, an overemphasis model of poverty inclusion. 


Banerjee, S. B., & Jackson, L. (2017). Microfinance and the business of poverty reduction: Critical perspectives from rural Bangladesh. Human relations, 70(1), 63-91.

Copestake, James, (2002) “Inequality and the Polarizing Impact of Microcredit: Evidence from Zambia’s Copper belt”.

Khanam, D., Mohiuddin, M., Hoque, A., & Weber, O. (2018). Financing micro-entrepreneurs for poverty alleviation: a performance analysis of microfinance services offered by BRAC, ASA, and Proshika from Bangladesh. Journal of Global Entrepreneurship Research, 8(1), 1-17.

Muhammad Yunus (2003). Banker to the Poor: Micro-lending and the Battle against World Poverty. Public Affairs, New York.

Mecha, N. S. (2017). Effect of microfinance on poverty reduction: a critical scrutiny of theoretical literature. Global journal of commerce and management perspective, 6(3), 16-33.

Simeyo, O., Martin, L., Nyamao N. R., Patrick, O., &Odondo, A.J. (2011). Effect of Provision of micro finance on theperformance of micro enterprises: Kenya Rural Enterprise

Vatta, Kamal. (2003). Microfinance and Poverty Alleviation. Economic and political weekly. 38. 32-33. 10.2307/4413155.

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