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services to low-income individuals or to those who do not have access to typical banking services. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. While some studies indicate that microfinance can play a role in the battle against poverty, it is also recognized that is not always the appropriate method, and that it should never be seen as the only tool for ending poverty. More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality financial services to finance their income-producing activities, build assets, stabilize consumption, and protect against risks. These services are not limited to credit, but include savings, insurance, and money transfers LITERATURE REVIEW: ROLE OF MICROFINANCUNG IN POVERTY ALLEVATION The rural poor in LDCs are in desperate needs of credits, microfinance programs are supposed to make available fulfill credit need and help the poor to increase their living standard. Lack of saving and capital make it difficult for many poor people who want jobs in the formal and informal sectors to become self employed and to undertake productive employment generating activities, providing credit seems to be a way to generate self-employment opportunities for the poor. Microfinance programs directly targeting the poor are able to reach clients who are not yet served by financial institutions, and they are also important for upgrading target groups to more sustainable microfinance providers, thus increasing the outreach depth of financial institutions. At the same time, it is necessary to develop and strengthen microfinance institutions in order to sustain the provision of financial services to a growing number of low-income households Operation of microfinance institutions The services provided by microfinance institutions have been classified into four categories namely,savings facilities, credit facilities, insurance services and money payments or transfer services.
have very low outreach. Insurance Services This encourages more saving in financial assets and reduces the risk and potential losses in times of unforeseen circumstance. and served more members than any other continent. retained the highest volume of savings and credit. Comparing MFIs in Asia with those in Africa and Latin America. is based on an analysis of over 1. less volatility in consumption and greater security. Payments and Money Transfer Services This service facilities the free flow of money and subsequently trade and investments. Particularly insurance services reduce the impact of external shocks. Juanah (2005) states that the recent shift in terms from micro-credit to microfinance reflects that savings services± and not just loans± may help to improve the well-being of the poor in general and women in particular and that borrowing is riskier than saving. This generalization of course covers up some wide disparities within the region.Savings Facilities With more financial savings. The ultimate impacts are greater income. Those reporting to the Bulletin are thought to be amongst the best and are therefore unlikely to be representative (Meyer 2002: . In addition. the study found that in the 1990s Asia accounted for the majority of MFIs. It involves giving small loans to poor rural people for relatively short periods and regular and frequent repayment. Despite these disparities within the region. The easy transfer of money from one place to another and from person to person is a very effective instrument in facilitating business between people and places near and far. Countries such as Afghanistan. which gives only data on the limited number of MFIs who choose to report to the Bulletin. overall it is said that MFIs have flourished in Asia and that compared to other regions they exhibit good outreach and high repayment rates. greater income is available among people in the rural area and their consumption level increases Some Features of Microfinance in Asia ³Asia is the most developed continent in the world in terms of volume of MFI (microfinance institution) activities.500 institutions from 85 developing countries. Small amounts of loan is however a relative term and varies from institution to institution and from time to time. the need to borrow at high interest rates from private money lenders is reduced and the ability to purchase more productive assets improved. The largest number of members served and the largest distribution of loans and mobilization of savings in terms of GNP is found in Bangladesh. Myanmar and Pakistan also have low outreach due to a variety of factors. Credit Facilities This is the micro-credit component of microfinance services. East Asia is particularly well served by MFIs. As a result of the above. the two most populated countries in Asia.´ This conclusion. drawn by Lapeneu and Zeller (2001:27). Thus with banking services that enhance investors and even individual to easily access money. it leads to an increased desire among the rural poor to invest. Thailand and Viet Nam. In contrast. India and the PRC. Indonesia. despite a high concentration of the regions poor.2 Table 1 below presents the most recent data from the Microbanking Bulletin. capital is accumulated and greater capacity for self-investment is enhanced. Credit is usually provided to groups of individuals or village organizations that use joint-liability to enforce loan repayment.
even after adjusting for GNP per capita.microfinance. the need to monitor and examine the impact of its existing schemes on the living standards of the poor cannot be overlooked.pdf&rct=j&q=how%20does%20microfinance%20reduce%20poverty%20alleviation&ei= PXCkTYe1GYevrAfl36H5CQ&usg=AFQjCNErE15sWjvtmsKKxMm3pb3ZWUTuEA http://www.2 million poor households were provided loans through such schemes so far which seems to have reduced poverty significantly.67 million poor households through the existing microcredit schemes to date. References http://www. What is certain is that this relatively new industry is in it for the long haul.eu%2Fdo cuments%2FLensink_paper_8oct2008. On the other hand.microfinancegateway.rc/1.in.in.reduction.poverty. Thus.9183/ http://www.com/doc/36771663/Micro-Finance-and-Poverty-AlleviationNurhttp://www. Nonetheless amongst these.features.scribd.pk/url?sa=t&source=web&cd=19&ved=0CFUQFjAIOAo&url=http%3A%2F%2Fwww. size of loans and deposits are often taken as a simple indicator of impact on the poor. They account for the largest number of borrowers (70% of which are women) and are second only to African MFIs in terms of number of voluntary savers. Asian MFIs demonstrate relatively good outreach.26. Conclusion Microfinance provides small loans to the world's poorest people.14). either through nonprofit organizations or through larger commercial lenders.asia/ .org/researchpaper/2003/01/01/37. Asian MFIs have among the lowest Loan and Savings Balance per Borrower.google. Along with expansion of the microcredit services to the poor.and. Whether providing financial services to groups that traditionally could not access them helps these people or only puts them further in debt is still up for debate.com. suggesting that they are effectively reaching the poor. it should also focus on the expansion of microcredit schemes to poor since economic growth alone is not enough for poverty reduction.5 million (or 7.5 percent of the poor households) were provided with loans out of 6. by various measures.microfinance.adbi. In terms of impact. only 0. in Bangladesh 9.of. By these criteria. In Pakistan.asia/some.79 million (or 95 percent of the poor household) out of 10. if government aims to reduce poverty.org/p/site/m/template.cermi.
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