Impact of Micro-Finance on Economic Development
Introduction
In both developing and emerging economies, microfinance has vastly and increasingly been seen as one of the most important means for enhancing the lives of the poor and therefore a major tool for economic and social development mostly in rural areas. Lately, contrary to this widespread belief, critics have raised eyebrows against this growing popularity of microfinance as a major tool for enhancing economic development. Contrary to belief, they are of the opinion that microfinance is a ‘make-belief’ that is hindering economic and social development rather than enhancing it.
It is to this regard and in light of these growing controversies therefore, that this essay intends to take a critical look at the context “microfinance” in order to make an informed judgement on this growing controversy.
Before ascertaining the impact of Microfinance on economic development, it is imperative to first take a cursory look on what Microfinance is all about, its characteristics and the way it differs from traditional banking and therefore take a critical look at the criticisms surrounding it, so as to come up with the right judgement concerning the role it plays towards economic and social development.
What is Microfinance?
Traditional banking system has widely been regarded as unfit for the illiterate poor with no guarantees, as such ad hoc products designed to fulfil the needs of potentially billions of peculiar and unconventional borrowers, might prove successful in enhancing wider financial access, with a positive objective of bridging inequalities and fostering economic development (Visconti, 2008). It is to this regard, that the World Bank in 1996 established a Consultative Group to Assist the Poor (CGAP), directing entirely about $200m in funding of microfinance projects (Rogaly, 1996).
The term micro-finance has over the years generated a lot of definitions by various authors. Armendáriz and Morduch (2010) have documented that despite several claims as to
In both developing and emerging economies, microfinance has vastly and increasingly been seen as one of the most important means for enhancing the lives of the poor and therefore a major tool for economic and social development mostly in rural areas. Lately, contrary to this widespread belief, critics have raised eyebrows against this growing popularity of microfinance as a major tool for enhancing economic development. Contrary to belief, they are of the opinion that microfinance is a ‘make-belief’ that is hindering economic and social development rather than enhancing it.
It is to this regard and in light of these growing controversies therefore, that this essay intends to take a critical look at the context “microfinance” in order to make an informed judgement on this growing controversy.
Before ascertaining the impact of Microfinance on economic development, it is imperative to first take a cursory look on what Microfinance is all about, its characteristics and the way it differs from traditional banking and therefore take a critical look at the criticisms surrounding it, so as to come up with the right judgement concerning the role it plays towards economic and social development.
What is Microfinance?
Traditional banking system has widely been regarded as unfit for the illiterate poor with no guarantees, as such ad hoc products designed to fulfil the needs of potentially billions of peculiar and unconventional borrowers, might prove successful in enhancing wider financial access, with a positive objective of bridging inequalities and fostering economic development (Visconti, 2008). It is to this regard, that the World Bank in 1996 established a Consultative Group to Assist the Poor (CGAP), directing entirely about $200m in funding of microfinance projects (Rogaly, 1996).
The term micro-finance has over the years generated a lot of definitions by various authors. Armendáriz and Morduch (2010) have documented that despite several claims as to
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Some country examples are stokvels in South Africa, tontines and susu in West Africa, iqqubs in Ethiopia, ke in Korea, and arisan in Indonesia (Anderson, 2002). [ 9 ]. See Dichter (2007), Rogaly (1996), Bateman (2003, 2008).