How does microfinance help the poor?
The impact of microcredit has been studied more than the impact of other forms of microfinance. Microcredit can provide a range of benefits that poor households highly value including long-term increases in income and consumption. A harsh aspect of poverty is that income is often irregular and undependable. Access to credit helps the poor to smooth cash flows and avoid periods where access to food, clothing, shelter, or education is lost. Credit can make it easier to manage shocks like sickness of a wage earner, theft, or natural disasters. The poor use credit to build assets such as buying land, which gives them future security. Women participants in microcredit programs often experience important self-empowerment.
Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change. Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children’s education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.
Microfinance plays an important role in fighting the multi-dimensional aspects of poverty. Microfinance increases household income, which leads to attendant benefits: increased food security, the building of assets, and an increased likelihood of educating ones children. Microfinance is also a means for self-empowerment.
Microfinance and its components helps poor people or low-income earners to meet their basic needs, and be in a better economic condition. Having access to micro insurance, poor people can handle sudden expenses associated with serious illness or loss of assets. By having savings accounts poor people can also be able to plan for the future e.g children’s education. Studies in different countries have proved that through Microfinance poor have been able to graduate from poverty, and illiterate.
