Microfinance Role in Economic development

Microfinance Role in Economic development

“Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little” Adam Smith (1776). Today, the world faces the major challenge of reducing poverty. Of the world’s 6 billion people, 2.8 billion live on less than 2 dollar a day and 1.2 billion live on less than 1 dollar a day. Of these 1.2 billion, 500 million live in Africa. The United Nations has recognized the positive impact of microfinance in economic development (Hulme and Mosley, 2006).

Microfinance impact studies have demonstrated that:

1. Microfinance helps poor households meet basic needs and protects them against risks.
2. The use of financial services by low-income households leads to improvements in household economic welfare and enterprise stability and growth.
3. By supporting women’s economic participation, microfinance empowers women, thereby promoting gender-equity and improving household well being.
4. The level of impact relates to the length of time clients have had access to financial services.

Microcredit helps in reducing poverty by providing the poor with credit facility to start a small business. It not only supports the economic condition of the poor people but also has positive impacts on their social life through better standard of living with greater access to education and health facilities and empowerment to participate in decisions of the society.