Microfinance and Financial Development

In this paper, the author presents a case with focus on microfinance as a crucial strategy for financial development that ultimately leads to reduction in poverty levels.

The paper is structured as follows:

• Financial development and poverty alleviation:
  • The author cites examples and studies to establish the link between financial development and poverty alleviation through the medium of economic growth.
• The basics of microfinance;
• Financial development by focusing on microfinance:
  • The article describes the reasons why microfinance could be an effective tool for financial development to reduce poverty.

The author presents the following reasons why microfinance can contribute effectively to financial development:

• Financially sustainable institutions can contribute to poverty alleviation on a large scale and aid in market deepening; hence, in financial development;
• In countries with bad governance environment, microfinance may prove to be an effective and useful strategy over other strategies;
• Microfinance can help in maturing of financial markets by indirectly developing the banking sector;
• Microfinance could contribute in creating an atmosphere conducive to building and implementing domestic economic reforms in a country.

The paper concludes with the restatement of the case for microfinance being used for financial development. The author also points out to the need for further research in each area explored to present a stronger case.