Financial System Approaches to Microenterprise Development

Abstract

Microenterprise development (MED) has been recognized as an important strategy for employment generation and poverty alleviation in developing countries. Microfinance has been identified as an important approach to help the poor in getting access to financial services. Among microfinance, self-help group (SHG) bank linkage and microfinance institution (MFI) models are the major models in India. The present study is about critically analyzing and assessing the workings of these approaches. The major objectives of the study are ( a) to understand the approach, design and process of implementation of microfinance approaches, ( b) to analyze the performance of microfinance approaches as a tool for promotion of microenterprise and ( c) to identify the factors influencing the performance of microenterprises. Using primarily the case study method of research, both qualitative and quantitative data were collected including carrying out a limited survey of micro-entrepreneurs with these interventions. The study has adopted a descriptive analysis method. Intra- and inter-case analysis has been carried out. The study concludes that financial system approach has been useful in helping poor people in establishing their microenterprise but failed to help them in expansion of the activity due to higher interest rate (MFI model) and limitation on loan amount (SHG model). Despite their limitation of loan amount, SHG bank linkage model has come out as a better approach in promoting microenterprises.