Microfinancing and Poverty Alleviation

ABSTRACT

"Give a man a fish, he'll eat for a day. Give a woman microcredit, she, her husband, her children, and her extended family will eat for a lifetime." "Microfinance stands as one of the most promising and cost-effective tools in the fight against global poverty."

We often have encountered the essential idea, concept, and scope behind microfinancing but have you ever analyzed it in depth with reference to poverty alleviation and it’s success and implications?

In this article, we’ll read lengths about microfinancing and poverty alleviation. We’ll explore the two-way aspect to both topics and its connection in the roadway to a developing economy like India.

WHAT IS MICRO FINANCING AND HOW DOES IT WORK?

It’s a banking service provided to individuals with low- income, unemployed, or who don't have access to proper formal financial services. Microfinance also focuses on helping women as well. Microfinance services are designed to succeed in usually the poor population segments, possibly socially marginalized, or geographically isolated, and to assist them to become self-sufficient and alleviate them monetarily. Microloans are provided at a low-interest rate, minimal paperwork despite the high default risk. Microfinance institutions raise finance through donor grants, banks, government subsidies, and including debt with non-market terms favourable to the MFI.

POVERTY ALLEVIATION

Refers to a reduction in poverty through economic and humanitarian measures, it intends to lift people out of poverty status.

TAKEAWAYS

1. It’s a key component of Sustainable development goal (SDG) of United Nation (UN)

2. It is necessary to tackle any effective program related to sustainable development.

3. More than half of the world’s working-age adults (about 2.5 billion) still do not have access to financial services of regulated financial institutions (UN report) hence calls for micro-financing and poverty alleviation.

Let’s understand the depth and roots of the theory of change due to microfinancing and it’s importance through a case study

La Maman Motuke lived in a wrecked car in a suburb of Kinshasa, Zaire with her four children. If she could find something to eat, she would feed two of her children; the next time she found something to eat, her other two children would eat. When organizers from a microcredit lending institution interviewed her, she said that she knew how to make chikwangue (manioc paste), and she only needed a few dollars to start production. After six months of training in marketing and production techniques, Maman Motuke got her first loan of US $100, which she used to buy the production materials necessary to start her own business.

Today, Maman Motuke and her family no longer live in a broken-down car: they now rent a house with two bedrooms and a living room. Her four children go to school consistently, eat regularly, and dress well. She is currently saving to buy some land in a suburb farther outside of the city and hopes one day to build a house there. ~ Source: Mircosummit.org

The above-cited example highlights the importance and impact of microfinancing in poverty alleviation.

Is India using microfinancing to alleviate poverty and accelerate towards economic yet holistic development considering 68.8% of the Indian population lives on less than $2 a day? Over 30% even have less than $1.25 per day available - they are considered extremely poor.

Current day scenario

With the emergence of the diverse of the microfinance ecosystem calls for, sustainable growth of the industry which is directly proportional to the transformation initiatives effectively improving the stakeholders’ experience, and managing overall operational efficiency.

After the instigating efforts of the last couple of years, the microfinance scene in India has reached a takeoff point. As a totality, the role of microfinance in India can't be understated. Although, in the competitive scenario, the industry is converting into for-profit from not-for-profit NGOs and has forgotten its main and foremost role to deal with the requirements of poor in-country, but, the stand of microfinance whether in “for-profit‟ or “not-for-profit‟ formats will expedite and remain the same. The govt. and its programs only cannot fulfil the requirements of the poor. Adopting a client-responsive approach, including ethics-based transparency, could take this sector to the pinnacle of success and fulfil an awfully strong need of poor people in modern India.

Write-up by: Devanshi Vaidya