POVERTY ALLEVIATION THROUGH MICROFINANCE At the most basic level, the key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development. ~ Jeffrey D. Sachs Creating self employment opportunities is one way of attacking poverty and solving the problems of unemployment. The Scheme of Micro-finance has been found as an effective instrument for lifting the poor above the level of poverty by providing them increased self-employment opportunities and making them credit worthy.
There is a need for designing financially sustainable models and increase outreach and scale up operations for poor in India. The impact of micro finance on poverty alleviation has been measured in terms of several dimensions such as : 1) improved income 2) employment 3) household expenditure 4) reduced vulnerability to economic and social crises.
Micro finance organizations should provide the social space and the political power for the poor to advance entrepreneurial endeavors and providing them with the right financial tools and knowledge to start a microenterprise, which will help them in the long-term and allow them to become self-sustaining in the process. It helps create investment options which the poor can choose from. The deeper the poverty — social, economic and political — the less effective is credit as a trigger for livelihood. utilizing microloans Kathryn Imboden (2005) indicates in her research that there is a growing number of literature that can support the positive relationship between financial sector development and poverty alleviation. .Success, self-respect and dignity are basic ingredients in overcoming the conviction that poor people and their children are born losers, born to fail” (van Maanen, 2004, pp. 27-28). The challenges involved in measuring the impact of Micro Finance are : ) Obtaining a reliable data for market analysis through the development and use of the new tools for evaluation and monitoring which can cut costs in the short-run and help achieve long-term social and economic goals. 2) The level of flexibility in the credit instrument will help to meet the multiple credit requirements of the low income borrowers. 3) The designing and targeting of the Micro Finance programs to the needs of the extreme poor will have a positive impact on the client’s retention.
A number of studies have substantiated on the impact of Micro finance :- 1) There are strong potential synergies between the Micro Finance and the provision of basic social services for micro finance clients 2) The infrastructure for micro finance and the services provided to the clients need to be relevant to the needs of the of the target group. The benefits derived from micro finance, basic education and primary health care are interrelated , and the impact of the program increases when the basic social services are delivered together. ) The social and economic impacts of micro finance has a beneficial affect on increase in income recorded by various researchers ( Wright 2000; UNICEF 1997; Khandker 2001,1998) and reductions in vulnerability in some studies ( Wright 2000,Zaman 2000;Mc Culloch and Baulch 2000) 4) Studies show that there is no evidence of an inverse relationship between a client’s level of poverty and their entrepreneurial ability ( Garson) and borrowing patterns and the inclination to save have been found to be similar across clients at different levels of poverty( Zaman 2000). ) Savings have a minor developmental impact on the basic social needs and is slow in creating any significant wealth in itself unless credit is available. Researchers have revealed that Savings –first Micro Finance Institutions tend to reach a smaller proportion of the poorest and have a lower and slower impact on the poverty alleviation 6) Micro Finance compares favorably to other interventions with regard to cost effectiveness and prospects for financial sustainability. In Micro finance investment is recycled and reused ( Wright 2000) .
The cost for Micro Finance tend to diminish with the scale of outreach (Rhyne 1997; Christen et al 1996) Strengths of Micro Finance The benefits of micro finance, ranges from stressing its economical and social dimensions and its consequences, to the contribution of enhancing the holistic character of poverty reduction. Microfinance have certainly helped the poor manage their cash flow cycles better, especially considering the seasonal nature of agricultural income. There is the improvement in health and nutritional status as also school attendance by children of those covered by microfinance programs.
As the structure of our economy is changing, educational attainment will be important for participation in the economy, and, among the poor in India There has also been positive impact through collective action and social mobilization and has provided a voice to the marginalized sections of society. One of the key achievements of and possibly the biggest strengths of the Indian micro finance program has been inculcating thrift and saving habit among the poor . Weaknesses When understanding the capability of microfinance as an anti-poverty tool, it is important to remember that microfinance is not the only solution to global poverty.
There are other variables aside from economic factors that contribute to the prevalence of poverty in our society. A number of literature argue that microfinance lacks hard, quantitative data that accurately measure significant changes in the economic conditions of the poor (Midgley, 2008, p. 472). They also indicate that although participants improve their incomes, it is not clear whether this benefit accrue to the society and positively affect other people in the community and national levels (Midgley, 2008, p. 473).
Another equally important issue on the role of microfinance as a poverty alleviation tool involves sustainability. Because MFIs usually rely on donations from different organizations, foundations and governmental agencies, their operations and financial services are clearly dependent on the frequency and amount of monetary support that they receive from donors. Since donations can be unreliable, a trend towards self-sustainability has become more evident among MFIs because this allows them to better serve their clients and keep up with the high costs associated with their operations (Husain, 2008, p. 0). The real aim of fulfilling social goals may be overshadowed by pure economic interests if MFIs would continue to pass on the burden of costs to their customers by charging high interest rates. Conclusion Microfinance’s real impact on alleviating poverty at the global level is not supported by rigorous research, as critics claim. Stories of success are also not enough to accurately measure the extent to which microfinance has impacted the poor.
MFIs must adapt new approaches to be able to effectively serve and address the needs of their customers. Viability of micro finance needs to be understood from a dimension that is far broader- in looking at its long-term aspects too . very little attention has been given to empowerment questions or ways in which both empowerment and sustainability aims may be accommodated. Failure to take into account impact on income also has potentially adverse implications for both repayment and outreach, and hence also for financial sustainability.
The challenge lies in finding the level of flexibility in the credit instrument that could make it match the multiple credit requirements of the low income borrower without imposing unbearably high cost of monitoring its end use upon the lenders. Nevertheless ensuring that the micro-finance sector continues to move forward in relation to gender equality and women’s empowerment will require a long-term strategic process of the same order as the one in relation to poverty if gender is not to continue to ‘evaporate’ in a combination of complacency and resistance within donor agencies and the micro-finance sector.
A diversified micro finance sector should be developed where different type of organizations, NGO, MFIs and formal sector banks ,have gender policies adapted to the needs of their particular target groups/institutional roles and capacities and collaborate and work together to make a significant contribution to gender equality and pro-poor development.