Microfinance and poverty reduction nexus: a reality.

• Author: Nisarc, Ahsan

Byline: Ahsan Nisarc

Poverty is a multi-faceted fabric which involves economic, social, cultural and psychological dimensions. It is a worldwide phenomenon whose consequences are dehumanizing, devastating and traumatic. In the light of this, and recognizing the importance of the devastating effect of poverty and inequality, the awareness is much more favored at the international level of finance and governance. Poverty results from over population, low economic growth, unequal distribution of wealth and most importantly, low per capita income. This, coupled with poor health, people in third world countries get low productivity due to which they are mostly unemployed. Such poverty can only be reduced by investing in human and physical capital.

Poverty means deprivation from the basic essentials of life. The level of poverty is determined by the income level and degree of inequality among others. The roles of microfinance in poverty reduction have attracted various researchers to the extent that different opinions have been formed. For instance, while some researchers conclude that microfinance loans are mainly used for health, education of school children and production related expenses, others are of the opinion that microfinance has played a tremendous role in reducing the depth and incidence of rural poverty and serves as aid for shocks from natural disaster and health related calamities. Even microfinance reduces poverty at the macro level.

Microfinance has been adjudged as a reliable tool for poverty alleviation. It can be used to boost the investment which eventually entails the reduction of poverty and improves the standard of living of the poor. However, microfinance has been used on several occasions to reduce poverty, in rural areas in particular which are believed to harbor the poorest people in the world. It is an important aid that can improve the economic performance of the poor. The poor people need microfinance to improve their entrepreneurial skill and socio- economic needs. But the poor people could not meet up with the requirements of the conventional banks and microfinance is not reachable. They continue to wallop in abject poverty and vicious circle.

Microfinance can be an effective tool...