Reflecting on Micro Finance in Poverty Reduction

Abstract

Development policy has increasingly shifted towards expanding financial services to the poorer sections of the population following the Grameen Bank success. In spite of this and other micro finance success stories, the effectiveness of microfinance in reducing poverty continues to be questioned with some arguing that micro finance programmes have little to no impact on poverty reduction. Whilst demanding empirical evidence of positive impact, critics of microfinance as poverty reduction instrument continue to ask lingering questions like who is the programme supposed to reach? Who is it reaching? What impact is it making on the lives of the poor? On the other hand, some are steadfast that a well-designed microfinance programme can change the lives of the poor at the individual, household, enterprise and community levels and help raise the standard of living of the poor out of the poverty. In this study, the researchers enter the debate by reviewing both empirical and normative literature to determine the extent to which microfinance is able to reduce poverty. Based on insights gained, it is concluded that micro finance is not fulfilling its original mandate of extricating the poor from poverty or vulnerability to it to the level of comfort. We also provide recommendation for policy and practice.

DOI: 10.5901/mjss.2014.v5n21p345