Microfinance In Developing Countries

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Introduction The access to financial services is limited in developing countries. According to Robinson (2001), 90% of people in developing countries lack access to financial services from institutions. The necessity of covering this limitation led to “microfinance”. Although microfinance is probably very ancient, the term’s origin is recent. The term microfinance has been used since the 60’s and 70’s, and it can be defined as small-scale financial services provided to poor people who does not have easily access to them in developing countries (Robinson, 2001). Others authors consider that microfinance serves as a means to empower the poor, and provides a valuable tool to assist the economic development process (Vincent, 2004). This term has…show more content…
These three features are indispensable when we talk about microfinance. Microfinance has been conceived as an instrument to solve the problem of poverty and underdevelopment. Sustainable access to financial services enables poor people to increase their income, invest in goods and more able to reduce their vulnerability to external shocks. Microfinance model assumes that its access allows poor households have better financial management, letting go beyond basic survival, to plan their future and invest in better nutrition, improved living conditions, health and education of children. The microfinance model became one of the most important international development policies in the last thirty years, and still a very important policy in diverse significant aspects. Many scholars claim that microfinance is “revolutionizing” the world. Thus, this claim leads us to the question: is, in fact, microfinance a revolution? The argument presented here is that the microfinance model itself is a revolution, however empirical results show that this revolution can be…show more content…
Microfinance means building financial systems that serve the needs of the poor. Poor people constitute the majority of the population in developing countries. However, an overwhelming number continues without access to basic financial services. In many countries, microfinance continues to be seen as a marginal sector and as a matter of donors, governments, and social investors. In order to get the full potential to reach large numbers of poor people, microfinance should become an integral part of the financial sector. 4. Limitations of Microfinance diminish the efficiency of this kind of models on poverty. MFIs have to mitigate those limitations in order to obtain the expected results in poverty alleviation. 5. Microcredit is not always the solution. Microcredit is not appropriate for everyone or every situation. Poor people that have no income or means of repayment need other forms of support before they can make use of a loan. In many cases, little donations, infrastructure improvements, employment and training programs, and other non-financial services may be more appropriate tools for poverty alleviation. Encouraging savings should complement non-financial

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