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Poverty Alleviation Strategies

Updated on June 19, 2013

Role of Microfinance Institutions in Poverty Alleviation

Micro-finance institutions offer financial services which have powerful implications in alleviating poverty among low-income earners. These institutions are reliable and effective way of empowering the poor especially in developing countries.


Among the economically active poor in the society, there is strong demand for small scale commercial financial services such as credit and savings. Microfinance institutions avail these services in order to help low income earners to improve household and enterprise management. By doing this, these institutions increase productivity, smoothen income flows and consumption cost, thus resulting to enlargement and diversification in their micro-business and increased incomes (Imboden, 2005). Thus, microfinance institutions play a critical role in supplying loans, savings and other basic financial services to the poor, thus contributing towards improvement of quality of life.


Microfinance institutions’ approach of offering financial assistance through various agencies towards the individuals back in the village/country side with poor people helps in creating self employment, enhancing income levels through better utilization of available resources, and income generating activities. These institutions enable the poor individuals who could not get easy access to loans from the banks to easily access and help themselves in building up their families through the field of success (Pethiya, 2000; Teki, 2000).


The experience which has been obtained through microfinance institutions has proofed to show that the poor are bankable and that poverty alleviation is possible. There are various interventions within the microfinance approach that have been unhidden to improve communities in the poor backyards of the country. According to Imboden (2005), these interventions help in fusing fundamental habits for economic independence and self-reliance.


Appropriate and participatory credit plans by the group members help in social and economic empowerment. Increased access signifies the overcoming of isolation of rural women in terms of their access to financial services and denial of credit due to absence of collateral security. Examples of these interventions include the Self-Help Groups (SHGs) or solidarity group approach. This intervention is based on finance being made available to groups of 10 to 20 poor people who join hands together to form a singular group also known as chamas in Kiswahili. The objective of the chama is to save and serve their financial requirements amongst themselves. This enables each member to participate fully and directly and take decisions on all issues concerning poverty eradication (Mordeno, 2010). The only limitation with self-help groups approach is that they can only be applied in a society where each member doesn’t only think about himself but thinks on the perspective of community appraisal from poverty. This group approach is mostly applicable in Africa where community bonds are still strong.


References

Imboden, K. (2005). Building inclusive financial sectors: the road to growth and poverty reduction. Journal of International Affairs, 58(2), 65-86. Retrieved from Academic Search Premier, EBSCO.

Mordeno, K. (2010). Microfinance: the Path to Poverty Alleviation. Available online at: http://stjliblog.wordpress.com/2010/04/19/microfinance-the-path-to-poverty-alleviation-by-kathryn-mordeno.

Pethiya, B.P. and Teki S. (2000). Role of Microfinance in Marketing NTFP and Improving the Living Standard of Rural Poor, IIFM, News letter, Vol. III, No. 2, June 2000 pp8-9.

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