Micro Finance: A tool for poverty Reduction

Abstract

Indian population comprises approximately one sixth of the world’s population. Among this, ten percent of the population possesses a large proportion of the total wealth of India. There is a wide gap exists between the rich and the poor in India. During the past few years, India has demonstrated a welcome willingness to innovate and to think afresh about financial services to alleviate poverty. The poverty reduction has become the object of unprecedented attention at national and international level. The Scheme of Micro-finance has been found as an effective instrument for lifting the poor above the level of poverty by providing them increased self-employment opportunities and making them credit worthy. Thus the concept of micro finance gained growing recognition as an effective tool in improving the quality of life and living standards of poor people. This paper attempts to provide a critical appraisal of the debate on the effectiveness of microfinance as a universal poverty reduction tool. It argues that while microfinance has developed some innovative management and business strategies, its impact on poverty reduction remains in doubt. Microfinance, however, certainly plays an important role in providing safety-net and consumption smoothening.