Role of Microfinance in Economic Development

Abstract

As it leads to greater respect, independence, and involvement for women both, inside and outside their homes and in the workplace, microfinance plays a significant role in empowering society and the country at large. More in-depth definitions of microfinance may be found on this page. A microfinance institution provides financial services (loans, savings, and insurance) to individuals and small businesses on a small scale to people and small businesses, particularly those with low or moderate incomes, as defined by the World Bank. In developing countries, providing small business owners with low-interest loans with a low monetary value is one of the most widely used strategies for assisting them in their efforts to lift themselves out of poverty. Micro-loans are loans with a low economic value that are given to small business owners. Microfinance Institutions (MFIs) provide loans and savings services to small and medium-sized enterprises (SMEs) are made possible through a range of funding techniques. Microfinance institutions (MFIs) provide services to small and medium-sized businesses (SMEs) leading to economic development and social development. As a result of having access to these services, the idea holds that the poor’s financial position will become more stable, predictable, and secure over time. Through education, healthcare, and self-determination, individuals will be able to better plan for their futures and enhance their livelihoods in the process. Microfinance may also be utilized to assist individuals in achieving their financial independence. The high capital cost in microfinance is highlighted as one of the reasons leading to high-interest rates in the industry. Apart from traditional lending sources, microfinance providers may also get loans from commercial banks, which lend to Microfinance Institutions at market rates.