Impact of Micro-Finance on Economic Development Essay

Words: 3747
Pages: 15

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”
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Roodman and Qureshi (2006) equally highlighted a common feature of MFIs but which sometimes seems unnoticed. According to them, the MFIs have a marketing approach of reaching out to clients’ (poor potential customers’ especially those leaving in rural areas) right in their very door step. This can be termed as “door to door banking”. Their objective is to get acquainted to them, bridge information asymmetry and enforce transaction while also ensuring compliance.
Economic Development
Having highlighted some of the major characteristics of microfinance, it will be worthwhile to take a look at its impact to economic development. Since microfinance generally refers to a means whereby the poor are allowed access to credits, it will be imperative to ascertain its relevance to economic development.
Ashta (2007) opined that one key problem in developing countries is the fact that several poor people lack finance coupled with other relevant and basic necessities (education, state aid, infrastructure etc) which is an obstacle to the birth of entrepreneurship, and since complementary assets require outside financing (being savings not existent or not properly “stored”) it therefore has a negative effect on employment.
If Adam Smith’s path breaking treaty on the Wealth of Nations (1776) is anything to go by, then one can wonder why the poor people (normally) remain indigent and how they can climb up the social ladder. Answer to this