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    You are at:Home » Microfinance as a Development Tool

    Microfinance as a Development Tool

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    By InfoDesk on February 26, 2023 Finance

    Micro finance is the provision of small loans and essentially used by low income individuals and households. Micro finance is an enabling, empowering, and bottom up tool to poverty alleviation that has provided considerable economic and non-economic externalities to low income households in developing countries by providing short-term credit very frequently and timely to meet their daily needs such as food, agriculture, educational of children, health, family functions etc. Micro finance in India played a significant role of SHGs- Bank linkage.1 The primary aim of the SHG – Bank linkage programme is to integrate informal savings and credit groups with mainstream banking system by providing credit facility to groups. Hence, this link has established between informal groups (SHGs) and formal financial institutions (banks) for catering the financial needs of the poor.Microfinance as a Development Tool

    Access to financial services, such as loans, savings services, insurance, and money transfers enable people to increase income and smooth consumption flows, thus expanding their asset base and increasing their ability to respond to a crisis. The availability of financial services acts as a buffer against sudden emergencies, business risk, and seasonal slumps that can push a family into destitution. Since low income people are often ineligible for traditional financial services, microfinance specifically targets low-income groups. As a development tool it is believed making these services available to poor households can help them to move from mere subsistence for daily survival to planning for the future and investing in better nutrition, improved living conditions, and children’s health and education. Impact studies show that in many cases, microfmance reduced poverty through increasing income levels. Studies also show that microfmance has resulted in improved healthcare, children’s education and nutrition, and women’s empowerment. In particular, the ability to borrow, save, and earn income reduces economic vulnerability for women and their households. Nonetheless, microfmance is not a panacea. Even the most iimovative and participative programmes can lead to unwanted negative impacts. In many cases, microfmance has been shown to benefit the moderately poor more than the truly destitute. Many early impact studies on microfmance showed increased income levels, but more recent and better-designed studies have shown that the impact can vary per income group. In most cases the better-off benefit more from microcredit, due to their higher skill levels, better market contacts, and higher initial resource base. Lower income groups may be more risk-averse, and benefit more from micro savings and micro insurance.


    For citing this article, use:

    • Brintha, P. (2012). Micro financing through self_help groups for rural development_an evaluation_A study with special reference to Madurai District.

    References:

    1. A K Bandyopadhyay, “ NABARD’s Innovations in Rural Development”, Professional Bankers, The ICFAI University Press, September 2005, p.27
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