Microfinance Essay

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1.0 Introduction. According to Obaidullah Mohammed and Khan Tariqullah in The Islamic Research and Training Institute (IRTI) Saudi Arabia (2008) Microfinance is a powerful poverty alleviation tool. It implies provision of financial services to poor and low-income people. Their low economic standing excludes them from formal financial systems. 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. With the existence of microfinance, poor people can access to those small amounts of capital needed to invest in businesses or simply pay for household expenses. Microfinance is able to contribute to poverty alleviation because customers are able to protect, increase, and diversify their income and accumulate assets, which in the end the economic and social structures can be transformed fundamentally. 1.2 History. According to Hans Dieter Siebel, 1983 in Sudan he found the main problem of small entrepreneur which is the lack of access in credit. The bank offered two main products which are murabahah and mudarabah.... ... middle of paper ... ...ols as school fee loans, health insurance, and home improvement loan. Furthermore, microfinance are protecting against vulnerability because the strategies of credit programme are based on sustainability. It helps to save them from falling deeper into poverty. Then, the microfinance customers can make productivity- enhancing investment through microfinance. For example, they can invest in buying sewing machine, agriculture tools, or anything that they can earn profit from it. This example is suitable for small entrepreneur, or new businessmen who want to improve their businesses. Moreover, microfinance provides long term investment services so that they can leverage their assets. Most important thing, through microfinance they can finally gain more confident to step up and involve in the communities just like other citizens around them.

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