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    Role of Micro Finance in Poverty Allivation

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    saadriaz
    Microfinance provides small loans and other financial services to low-income individuals who otherwise lack access to traditional banking. While microfinance has helped some people lift themselves out of poverty, it is not a complete solution and should be seen as one tool among many. The document then reviews literature on the role of microfinance in poverty alleviation, describing how credit access allows the poor to engage in income-generating activities. It also outlines the various services commonly provided by microfinance institutions such as savings facilities, credit, insurance, and money transfers. Asia is noted as having many highly developed microfinance programs that effectively reach large numbers of poor households.

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    Role of Micro Finance in Poverty Allivation

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    saadriaz
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    Microfinance provides small loans and other financial services to low-income individuals who otherwise lack access to traditional banking. While microfinance has helped some people lift themselves out of poverty, it is not a complete solution and should be seen as one tool among many. The document then reviews literature on the role of microfinance in poverty alleviation, describing how credit access allows the poor to engage in income-generating activities. It also outlines the various services commonly provided by microfinance institutions such as savings facilities, credit, insurance, and money transfers. Asia is noted as having many highly developed microfinance programs that effectively reach large numbers of poor households.

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    ROLE OF MICRO FINANCE IN POVERTY ALLIVATION

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    Microfinance provides small loans and other financial services to low-income individuals who otherwise lack access to traditional banking. While microfinance has helped some people lift themselves out of poverty, it is not a complete solution and should be seen as one tool among many. The document then reviews literature on the role of microfinance in poverty alleviation, describing how credit access allows the poor to engage in income-generating activities. It also outlines the various services commonly provided by microfinance institutions such as savings facilities, credit, insurance, and money transfers. Asia is noted as having many highly developed microfinance programs that effectively reach large numbers of poor households.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    108 views4 pages

    Role of Micro Finance in Poverty Allivation

    Uploaded by

    saadriaz
    Microfinance provides small loans and other financial services to low-income individuals who otherwise lack access to traditional banking. While microfinance has helped some people lift themselves out of poverty, it is not a complete solution and should be seen as one tool among many. The document then reviews literature on the role of microfinance in poverty alleviation, describing how credit access allows the poor to engage in income-generating activities. It also outlines the various services commonly provided by microfinance institutions such as savings facilities, credit, insurance, and money transfers. Asia is noted as having many highly developed microfinance programs that effectively reach large numbers of poor households.

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    ROLE OF MICRO FINANCE IN POVERTY ALLIVATION

    Sadia Riaz

    ID: 11821

    Sec: G

    INTRODUCTION:

    Microfinance is a general term to describe financial services to low-income individuals or to


    those who do not have access to typical banking services.

    Microfinance is also the idea that low-income individuals are capable of lifting themselves out of
    poverty if given access to financial services. While some studies indicate that microfinance can
    play a role in the battle against poverty, it is also recognized that is not always the appropriate
    method, and that it should never be seen as the only tool for ending poverty.

    More broadly, microfinance refers to a movement that envisions a world in which low-income
    households have permanent access to a range of high quality financial services to finance their
    income-producing activities, build assets, stabilize consumption, and protect against risks. These
    services are not limited to credit, but include savings, insurance, and money transfers

    LITERATURE REVIEW: ROLE OF MICROFINANCUNG IN POVERTY


    ALLEVATION
    The rural poor in LDCs are in desperate needs of credits, microfinance programs are supposed to
    make available fulfill credit need and help the poor to increase their living standard. Lack of
    saving and capital make it difficult for many poor people who want jobs in the formal and
    informal sectors to become self employed and to undertake productive employment generating
    activities, providing credit seems to be a way to generate self-employment opportunities for the
    poor.
    Microfinance programs directly targeting the poor are able to reach clients who are not yet
    served by financial institutions, and they are also important for upgrading target groups to more
    sustainable microfinance providers, thus increasing the outreach depth of financial institutions.
    At the same time, it is necessary to develop and strengthen microfinance institutions in order to
    sustain the provision of financial services to a growing number of low-income households
    Operation of microfinance institutions
    The services provided by microfinance institutions have been classified into four categories
    namely,savings facilities, credit facilities, insurance services and money payments or transfer
    services.
    Savings Facilities
    With more financial savings, capital is accumulated and greater capacity for self-investment is
    enhanced. In addition, the need to borrow at high interest rates from private money lenders is
    reduced and the ability to purchase more productive assets improved.
    Juanah (2005) states that the recent shift in terms from micro-credit to microfinance reflects that
    savings services– and not just loans– may help to improve the well-being of the poor in general
    and women in particular and that borrowing is riskier than saving.
    Credit Facilities
    This is the micro-credit component of microfinance services. It involves giving small loans to
    poor rural people for relatively short periods and regular and frequent repayment. ―Small
    amounts‖ of loan is however a relative term and varies from institution to institution and from
    time to time. Credit is usually provided to groups of individuals or village organizations that use
    joint-liability to enforce loan repayment.
    Insurance Services
    This encourages more saving in financial assets and reduces the risk and potential losses in times
    of unforeseen circumstance. Particularly insurance services reduce the impact of external shocks.
    As a result of the above, it leads to an increased desire among the rural poor to invest. The
    ultimate impacts are greater income, less volatility in consumption and greater security.
    Payments and Money Transfer Services
    This service facilities the free flow of money and subsequently trade and investments. The easy
    transfer of money from one place to another and from person to person is a very effective
    instrument in facilitating business between people and places near and far. Thus with banking
    services that enhance investors and even individual to easily access money, greater income is
    available among people in the rural area and their consumption level increases

    Some Features of Microfinance in Asia

    “Asia is the most developed continent in the world in terms of volume of MFI (microfinance
    institution) activities.” This conclusion, drawn by Lapeneu and Zeller (2001:27), is based on an
    analysis of over 1,500 institutions from 85 developing countries. Comparing MFIs in Asia with
    those in Africa and Latin America, the study found that in the 1990s Asia accounted for the
    majority of MFIs, retained the highest volume of savings and credit, and served more members
    than any other continent.

    This generalization of course covers up some wide disparities within the region. East Asia is
    particularly well served by MFIs. The largest number of members served and the largest
    distribution of loans and mobilization of savings in terms of GNP is found in Bangladesh,
    Indonesia, Thailand and Viet Nam. In contrast, the two most populated countries in Asia, India
    and the PRC, have very low outreach, despite a high concentration of the regions poor. Countries
    such as Afghanistan, Myanmar and Pakistan also have low outreach due to a variety of factors.

    Despite these disparities within the region, overall it is said that MFIs have flourished in Asia
    and that compared to other regions they exhibit good outreach and high repayment rates.2 Table
    1 below presents the most recent data from the Microbanking Bulletin, which gives only data on
    the limited number of MFIs who choose to report to the Bulletin. Those reporting to the Bulletin
    are thought to be amongst the best and are therefore unlikely to be representative (Meyer 2002:
    14). Nonetheless amongst these, by various measures, Asian MFIs demonstrate relatively good
    outreach. They account for the largest number of borrowers (70% of which are women) and are
    second only to African MFIs in terms of number of voluntary savers. In terms of impact, size of
    loans and deposits are often taken as a simple indicator of impact on the poor. By these criteria,
    Asian MFIs have among the lowest Loan and Savings Balance per Borrower, even after
    adjusting for GNP per capita, suggesting that they are effectively reaching the poor.

    Conclusion
    Microfinance provides small loans to the world's poorest people, either through nonprofit
    organizations or through larger commercial lenders. Whether providing financial services to
    groups that traditionally could not access them helps these people or only puts them further in
    debt is still up for debate. What is certain is that this relatively new industry is in it for the long
    haul. In Pakistan, only 0.5 million (or 7.5 percent of the poor households) were provided with
    loans out of 6.67 million poor households through the existing microcredit schemes to date. On
    the other hand, in Bangladesh 9.79 million (or 95 percent of the poor household) out of 10.2
    million poor households were provided loans through such schemes so far which seems to have
    reduced poverty significantly. Thus, if government aims to reduce poverty, it should also focus
    on the expansion of microcredit schemes to poor since economic growth alone is not enough for
    poverty reduction. Along with expansion of the microcredit services to the poor, the need to
    monitor and examine the impact of its existing schemes on the living standards of the poor
    cannot be overlooked.
    References
    http://www.google.com.pk/url?sa=t&source=web&cd=19&ved=0CFUQFjAIOAo&url=http%3A%2F%2Fwww.cermi.eu
    %2Fdocuments%2FLensink_paper_8oct2008.pdf&rct=j&q=how%20does%20microfinance%20reduce%20poverty
    %20alleviation&ei=PXCkTYe1GYevrAfl36H5CQ&usg=AFQjCNErE15sWjvtmsKKxMm3pb3ZWUTuEA

    http://www.scribd.com/doc/36771663/Micro-Finance-and-Poverty-Alleviation-
    Nurhttp://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/

    http://www.adbi.org/research-
    paper/2003/01/01/37.microfinance.and.poverty.reduction.in.asia/some.features.of.microfinance.in.asia/

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