Micro finance - An Old wine in new bottle

Intense involvement with one particular sector can of course lead to a certain degree of blindness to its limitations and less positive aspects. However, in the case of microfinance, a more serious problem appears to be the lack of sufficient knowledge, and thereby the lack of awareness of the relatively high effectiveness and potential of microfinance, that exists among non-experts in the field.

The core difference between microfinance and previous schemes is that microfinance can reach the poorest of the poor. The most important clients of microfinance are people who undertake, either alone or together with family members, diverse and very small-scale micro-economic activities. The majority of microfinance services reach people living just below poverty level (usually the equivalent of US$ 1 per day) and the remainder reaches those living just above poverty level.

Sceptics accuse microfinance proponents of seeing financial services as a panacea for many social ills - as if proponents are claiming that microfinance is ‘the only’ means to enable people ‘to work themselves out of poverty by self-employment’. If this were so, the sceptics would be right. After all, development is a multi-dimensional process and microfinance can only achieve so much. However, underestimating the benefits of microfinance is just as unrealistic as exaggerating them. Further expenditures on children’s education increased as a result of microfinance, and in particular that ‘girl children benefited more than boys, because women’s investments went more to girls’.