ROLE OF MICRO FINANCE IN ALLEVATING POVERTY IN DEVELOPING AND UNDER DEVELOPED NATIONS:
More than help and subsidies poor need access to credit.The lack of formal employment make them non bankable.This forces them to borrow from local moneylenders at exhorbitant interest rates.Many innovative institutuional mechanism have been developed across the world to enhance credit to poor even in the absence of formal mortgage.The report discusses the conceptual framework of a microfinance institution and their role in allevating poverty around the world.
Almost half the world — over 3 billion people — live on less than $2.50 a day. Infact majority of these 3 billion people live in poor third world countries. India has the largest poor population in the world today. Africa follows Asia as the second poorest continent with the second largest poor population. Most poor people in India and Africa live on less than $1.25 a day.Most of these people lack access to basic financial services that would help them manage their assets and generate income. This is especially true for the millions of extremely poor people who live in rural areas of developing countries. To overcome poverty, they need to be able to borrow, save and invest, and to protect their families against adversity. With little income or collateral, poor people are seldom able to obtain loans from banks and other formal financial institutions. Microfinance is one of the most innovative way of fighting poverty existing in the rural areas of developing nations,where most of the world poor lives.microfinance gives a ray of hope to these poor people by putting credit,savings,insurance and other financial services within their reach. Through microfinance institutions , the poor can obtain collateral-free loans at relatively low interest rates and use the money for creating microenterprises (small businesses owned by poor people), funding children’s education, and improving homes, among others. Aside from microcredit , these institutions have also developed numerous financial products, such as micro-insurance and micro-mortgage that are designed to accommodate the poor’s financial needs. Most of these institutions have also required their clients to open up savings accounts, which could be used for emergency and investment purposes .Microfinance has become a global phenomena and a lifeline for the millions of poor by providing them financial inclusion and bringing them closer to the mainstream economy.
Brief HISTORY AND EMEREGENCE OF MICROFINANCE:
The concept of microfinance is not new. Savings and credit groups that have operated for centuries include the "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, "cheetu" in Sri Lanka, "tontines" in West Africa, and "pasanaku" in Bolivia, as well as numerous savings clubs and burial societies found all over the world. Formal credit and savings institutions for the poor have also been around for decades, providing customers who were traditionally neglected by commercial banks a way to obtain financial services through cooperatives and development finance institutions. One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland. Their principal purpose was making small loans with interest for short periods. At their peak they were making loans to 20% of all Irish households annually. In the 1800s, various types of larger and more formal savings and credit institutions began to emerge in Europe, organized primarily...
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