Microfinance: A Powerful Tool for Social Transformation, Its Challenges, and Principles

Abstract

This paper attempts to explore the role and importance of microfinance in reducing poverty by generating the income of the poor. Microfinance has been emphasized for poverty reduction in developing countries through executing dual activities such as collection of domestic saving and investment of small loan. In this connection, this paper suggests microfinance practitioners and MFI to follow certain principles for making the microfinance services more sustainable in the long run and sheds light on the problems and challenges of microfinance.MICRO LOANS ARE OF key importance in alleviating poverty. Prof. Yunus realized this with his work in Bangladesh and set up the Grameen banking system. In the search of practical measure to alleviate poverty, the microfinance movement offers a set of powerful tools for social and economic development. Whether in terms of addressing problem of malnutrition and disease, flight from rural to urban areas in the search of work, environmental degradation or the breakdown of families and communities, programs that provide small scale loans and economic training to resource-poor people are one of the brightest spots in the new development paradigm (Yunus 1980). The underlying success of microfinance programs stems, in part, from the fact that the principles are based not only on sound economics but also the practical application of spiritual principles. The sounding principles of the movement is a belief in the inherent nobility of humankind-of the integrity innate capacities and commitment of the resource-poor to work hard , take responsibility for their own lives , and repay credit. From those principles and from other essentially spiritual values like trust and self-reliance, the methodologies of successful microfinance programs worldwide have emerged (Lidgerwood 1998).

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“…It implies that higher the broad money supply, higher would be the GDP. This finding is consistent with the findings of Sharma (2004).…”

Impact of Microfinance Institutions on Economic Growth of Nepal

“…It implies that higher the broad money supply, higher would be the GDP. This finding is consistent with the findings of Sharma (2004). Table 5 shows the regression results of total number of staff, total number of members, ratio of microenterprises credit, total assets, total loan, total deposit, inflation and broad money supply on per capita income.…”

“…Likewise, access to financial services underpins the ability of the poor to achieve the MDGs on their own terms in a sustainable way. Evidence shows that poor people choose to invest in a wide range of assets, better nutrition, improved health, access to schooling, a better roof on their homes, and expansion of their small businesses (Sharma, 2004). The MFIs and the wholesale lending institutions together have raised the level of awareness and the required skills of deprived sector to successfully carry out locally feasible income generating activities (Shrestha, 2009).…”

Development Transformation Experienced by Marginalized Beneficiaries of a Government Sponsored Microfinance Program

“…On the other hand, Lidgerwood (1998) stated that the sounding principles of the microfinance movement is a belief in the inherent nobility of humankind -of the integrity innate capacities and commitment of the resource-poor to work hard, take responsibility for their own lives, and repay credit. From those principles and from other essential spiritual values lide trust and self-reliance, the methodologies of successful microfinance programs have emerged (cited by Sharma, 2004). A number of private, public and non-governmental institutions have been claiming their contribution in the field of microfinance by showing their high repayment rate (Journal of Nepales Business Studies).…”

“…Microfinance institutions need to adopt strategic approaches in order to address these management challenges as supportive policy with one door controlling and monitoring mechanism, effort to linkage formal and informal financial sectors involved in micro-financing program and flexibility in financial management regulation. Additionally, financial institutions themselves need to develop business planning practice and efficient management of human resources within the institution (Sharma, 2004).…”