Microfinance in poverty reduction

FE Team | Published: November 04, 2023 21:17:52

Microfinance, or the provision of small financing to low-income individuals and enterprises, has had a substantial influence on poverty and economic progress in Bangladesh. It has helped us to generate employment, raise incomes, and improve living conditions by giving credit to those who would otherwise be excluded from the official banking system. It has a crucial influence on poverty mitigation. According to a World Bank research, microfinance has helped reduce poverty in Bangladesh by up to 10 per cent. This is because microfinance enables people to establish or develop enterprises, which may lead to increased income and higher living standards. Microfinance has also contributed to economic prosperity. According to another research conducted by the Bangladesh Institute of Development Studies, microfinance has contributed up to two per cent of Bangladesh's yearly economic development. This is because microfinance helps to create employment, stimulate investment, and raise manufacturing. It has also helped Bangladesh reduce gender inequality.
However, microfinance is not without limitations. One issue is that the interest rates on microfinance loans can be quite high. Borrowers may find it challenging to repay their debts, leading to bankruptcy. Another issue is that microfinance loans are mostly insufficient to satisfy the demands of borrowers. This has the potential to limit the influence of microfinance in poverty alleviation and economic growth. Despite these limitations, microfinance in Bangladesh has had a positive influence on poverty and economic progress. Bangladesh's government and others are trying to overcome microfinance's problems so that it continues to play a constructive role in poverty reduction and economic progress.
Nafim Reza,
Student of the Department of Accounting and Finance,
School of Business and Economics,
North South University, Dhaka,
nafimreza@northsouth.edu