Microfinance and the Poorest

Reviewing role of microfinance in poverty reduction

This paper revisits microfinance's original goal of poverty alleviation, and critically examines its current goal of financial sustainability. The paper states that it is important to have a realistic assessment of the role of microfinance because market-oriented MFIs have hijacked and adapted the techniques of microfinance. Microfinance's current paradigm of financial sustainability challenges the very existence of many mission-oriented MFIs. Further, proximity of microfinance to the welfare-to-work approach has led to an exaggeration of its role in poverty alleviation. It also states that facts do not support the widely held belief that poverty can be removed simply by providing access to finance. Microfinance targeting remains an elusive goal. The paper asserts that microfinance should:

Provide livelihood finance if adequate opportunities for microentrepreneurs and the self-employed exist;
Cover those who have been left out by commercial banks;
Cover the poor and the near-poor;
Address the problem of mass poverty either through livelihood finance or consumption smoothing finance;
Not be used for minor medical expense or for lavish celebrations.