Cover Stories

Microfinance - Important Role in Economic Growth

Chaitanya Shah
Jun 2011
Page 3 of 3
 
A study of borrowers on the island of Lombok in Indonesia reports that the average incomes of clients increased by 112 per cent., and that 90 per cent. of households moved out of poverty. All over the world, one of the first things that poor people do with new income from micro-enterprise is to invest in their children's education. They have shown that poor people are good credit risks and that cost-effective techniques to provide financial services can be developed to offer them long-term sustainable growth.
 
Microcredit programmes have generally targeted women as clients (It has been estimated that eight out of every 10 microfinance clients are women) because women's performance on repayment often proves to be better than men's. They are also more likely to invest increased income in the household and in the family's well-being. Most important, microcredit can empower women to become more assertive, which is a good thing. Women are then more likely to participate in family and community decisions. The women's empowerment programme in Nepal found that 68 per cent. of its members were making decisions on buying and selling property, sending their daughters to school, negotiating their children's marriages and planning their families-all decisions that have traditionally been made by husbands.

Group of village women
 
One needs to focus on the importance of microfinance in alleviating poverty and meeting the millennium development goals. There is still a significant belief among NGOs that Governments are not supporting microfinance to the extent that they could.
 
There are concerns about commercialisation. The move towards strengthening the financial sector as a whole increasingly brings international and commercial banks into microfinance, what Professor Muhammad Yunus from the Grameen bank feels. He is one of the great microfinance innovators and his inspiration led to the bank's creation.
 
One of the important issues is to gather good data about the poor people's access to financial services, so that inadequate data will soon cease to be a factor in the slowness of the spread of microfinance. CGAP, a World Bank-hosted, multi-donor initiative to increase access to financial services to poor people, has estimated that some 2 billion low-income people in the developing world still do not have access to bank accounts or financial services.
 
Whether we should broaden and develop the financial sector or support microfinance institutions is not an either / or question, as both have a role to play in increasing access for the poorest to financial services. The country that stands out as a beacon in terms of access to microfinance and that demonstrates its potential is Bangladesh. Perhaps that is because of the power and inspiration of Professor Yunus and the Grameen bank. We need to continue to remind people of the success that has been achieved in Bangladesh and to urge all donors.
 
The concept has been gathering momentum in India too; however, we have a great ground to be covered. Let us hope that our policy makers will take early actions so as to improve the meaning of life for people who are below poverty line.
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