Role of micro finance in economic development – a therotical perspective

Microcredit plays a critical role in empowering women; helps deliver newfound respect, independence, and participation for women in their communities and in their households.

Microfinance is the provision of financial services (loans, savings, insurance) to people on a small scale, such as businesses with low or moderate incomes, but you can read more meticulous definitions here and here. Loans of micro value are one of the better known means of helping small business owners in developing countries move out of poverty. Microfinance Institutions (MFIs) provide loans and savings services through a variety of lending models, while micro entrepreneurs use these services. The theory is that if the poor have access to these services, their financial lives will be more stable, predictable and secure, allowing them to plan and improve their livelihoods through education, healthcare and empowerment. Microfinance is also a means for self-empowerment. One of the reasons attributed to interest rates in microfinance is the high cost of funds – among other sources, microfinance providers may obtain loans from commercial banks, who lend to Microfinance Institutions at market rates.