S (2005) Micro finance is a form of financial development that has primarily focused on alleviating poverty and improving the living standard by providing financial services to the poor. Haroon and Jamal (2008) Most people think of micro finance as Micro Credit i.e. lending small amounts of money to the poor. Micro finance is not only Micro Credit, but it also has a broader perspective which includes insurance, transactional services and savings. When a person earn less than two dollar per day he will be considered poor or if a person income not sufficient to fulfill foodstuff for healthy and productive life is called poor.
They gained popularity because they managed to show that poor people can be reliable bank customers. Microfinance institutions are majorly non-profit making institutions with the aim of providing credit loans to the poor people in the society with the aim of crossing them over the poverty line and also improving their economic status. (Mason and Yamaguchi) Microfinance has been a powerful and effective tool in the reduction of poverty by bringing the poor into the income stream. This is because it creates an opportunity for the poor to be able to indulge in self-employment rather than waiting for employment opportunities to be created. The invention of Grameen Bank and other programs has led to the spread of more and more micro-credit and microfinance services to the poor in the society.
It allows the poor to participate in services such as, credit, venture capital, savings, and insurance. The provision of financial services to the poor helps to increase household income and economic security, build assets and reduce vulnerability, creates demand for other goods and services for example education and health care; and stimulates local economies. 1.1 Definition. In the previous study of David Sloan (2013), Microfinance is providing small loans, primarily to women in poverty, and to who without collateral are unable to receive services from the formal financial sector. Generally, without access to capital, people cannot invest in activities such as existing businesses or new microenterprises, and it significantly reduces the chances of many to emerge from poverty.
The microcredit system provided the foundation for the poor to help themselves. The Grameen Bank has faced criticism for not providing proper tools to educate the borrowers before (Abedin, 1996). It has worked to improve on its microcredit system and continues to alleviate poverty. This bank has helped to impact communities all throughout Bangladesh. Individuals are expanding their choices, growing networks, and utilizing services from the government (Dowla, 2006).
The services of micro credit are dedicated to creating a better stable economy, opportunities in the establishment of medium sized enterprises, and co-operative development. The Microcredit Foundation of India provides sufficient and affordable customer oriented funding and other financial services as well as consulting and training to the target groups. Microcredit also provides a means of successful social mobilization and empowerment program to lead the credit delivery, even the poorest of the poor stand to benefit from microfinance. The mission is to have a system in which regular banks could make cheap loans in farming areas that would usually not possible for non-profit. Microcredit has successfully developed 95 rural branches of the bank.
Chapter 1: INTRODUCTION & RESEARCH DESIGN Microfinance refers to a variety of financial services that target clients such as particularly women and low-income groups. Since the clients of microfinance institutions (MFIs) have lower incomes and often have limited access to financial services microfinance products that are for smaller monetary amounts than traditional financial services. These financial services include loans, insurance, savings, and remittances. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. Microloans are given for different purposes and most frequently for microenterprise development.
Access to credit (CREDIT): credit service especially from formal institutions has many advantages in the life of borrowers. They are given training how they create jobs or entrepreneurship; they are encouraged to save some amount of earning on regular basis which used in some occasion by withdrawing it. Many from credit service institution can buy inputs for agricultural activities and other activities to be fruitful in production ( Jemaneh, et.al 2014). The variable is dummy,1 for having an access to credit service and 0 for otherwise. The existence of credit contributes much to reduce poverty.
Microcredit offers loans to poor people without requesting any financial history from them. These loans help to improve the quality of life of individuals and communities through commitment. In recent years, the idea of giving small loans to poor people became the darling of the development world, giving a way to propel even the poorest people into better lives (Jolis, 2011). Since its emergence, microcredit has been viewed as a very important tool for development. Many around the world believe microcredit is the antidote for global poverty.
If Micro-finance institutions construct themselves successfully enough to offer more services to the low income client market, and have the financial comfort to offer the appropriate interest per client income, it may be one of the strongest forces in alleviating poverty. If the institutions are constructed well enough to break even, or make a small profit, they become a huge beneficial investment of wealthy businesses and investors. When run as a sister company to other businesses, or by outside lenders on an online site, micro-finance institutions can provide opportunities, education, and a healthy flow of income to poverty stricken individuals for the rest of their lives, and slowly help alleviate poverty.
However, despite some commentators’ disbelief of the impact of microfinance on poverty, studies have shown that microfinance has been successful in many situations. Mayoux (2001: 52) states that while microfinance has much potential, the main effects on poverty have been: • Credit making a significant contribution to increasing incomes of the better-off poor, including