Effectiveness of Micro Finance towards Alleviation of Poverty-An Analytical Study

Abstract

Micro finance, as an alternative source of credit for the poor, has received wide attention in recent years owing to its contribution towards eradication of social and financial constraints and poverty alleviation. The basic unit of micro finance is a group of persons called the self-help group (SHG). SHGs are small informal associations of 15 to 20 poor persons, created for the purpose of enabling the members to reap economic benefit out of mutual help, solidarity and joint responsibility (O.P. Agarwal 2010)1. These small and homogeneous groups involved in savings and credit activity are capable of taking care of risks through peer monitoring. The informal voluntary associations of SHGs were formed to attain collective goals. In reality, the rural poor are incapacitated due to various reasons; most of them are socially backward, illiterate, with low motivation and poor economic base. Individually, the poor are not only weak in socio-economic terms, but also lack access to knowledge and information, which are the most important components of today’s development process (Fernandez 2007)2. However, in a group, they are empowered to overcome many of these weaknesses and constraints through micro finance provided by non-government organisations (Dasgupta et al. 2005)3. A study was carried out on the SHGs operating in Madurai to analyse the social and financial constraints faced by the members and also to measure the viability of the micro finance assistance provided by non-govemment organisations operating in Madurai towards the alleviation of poverty which in turn will improve the livelihood of the poorer sections of the society (Shah et al. 2008)4. The following are the constraints based on which the researchers have carried out this study. 1. Financial constraints a. Inability to provide collateral security b. Shortage of fixed and working capital c. Tight repayment schedule 2. Social constraints a. Lack of self-confidence b. Male dependence c. Lack of economic freedom