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Importance of Microfinance in Developing Countries

Benazir Marjan is intended to use her business knowledge in the practical field through this article.


Importance of Microfinance in Developing Countries

Micro finance is a banking service provided to unemployed or low income individuals or groups who otherwise would have no other access to financial services. It grants loans on reasonable small business securely and in a manner that is compatible with ethical practices.

As we know that the developing countries are the countries with economies that have low gross domestic profit (GDP) per capita and rely heavily on agriculture as the primary industry. Micro finance is undoubtedly a great opportunity for people of developing countries to get self dependent, to get self established as well. Some specifications are describing bellow:

1. Micro finance encourages small businesses which prompt economic growth within a country. General people may face difficulty to start any business due to lack of enough capital. In some cases, they may have a very profitable business idea, plan and revenue model. But they might not execute their potential due to deficit of investment. This is how micro finance helps to explore the latent potential in the business world of a developing country. Small business contribute to local economies by bringing growth and innovation to the community in which the business is established. It also help stimulate economic growth by providing employment opportunities to people who may not be employable by larger corporations. Entrepreneurs boost economic growth by introducing innovative technologies, products and services. Increased competition from entrepreneurs challenges existing firms to become more competitive. These activities raise the productivity of firms and economies. Both small and large businesses are the engines of an economy. Business provides jobs that allow people to make money and goods and services that people can buy with the money they make.

Small businesses benefit a society and and a country in several ways like, these create a feeling of independence, a certain life style, financial rewards, learning opportunities, creative freedom and personal satisfaction. All of these parameters are related to a country’s economic growth. Small business gets its right set of circumstances due to micro finance service provided in a country. This is how micro finance is like a blessing in developing countries opening the era of opportunities for new and short budgeted investors.

2. Micro finance encourages people to get self dependent over time. As it opens the chance to get start with something (business) like as their income source for future, therefore people see the dream of getting self dependent who didn’t even think of it before. Self dependence means dependence on one’s own resources or efforts. When people of developing countries starts getting depend on themselves regarding income, it raises the country’s status with time. Their individual income slowly increases the GDP (gross domestic profit) which will enhance a country’s economic growth as well.

3. Surely, micro finance helps in alleviation of poverty from a society, specially in rural areas of developing countries, where poverty level is high. It offers small amount of credits at reasonable interest rate, gives poor people an opportunity to set up their own small business.

4. Micro finance uplifts women empowerment. It helps women increasing their income earning abilities, leading to greater power within the household. Women are holding significant ratio of total population of the world. In some cases women are deprived of some rights they deserve in developing countries due to their social restrictions. They may deprived of education and jobs. Thus, micro finance can be a weapon for them to survive with a quality life being financially independent. It may positively affect the social situation of divested women by assisting self confidence and increasing the capacity to play more influencing role in the society. When females also contribute in financial activities that means a lot for the economic growth in a developing country.

5. Micro finance opens the path towards a successful economy. It is generally seen as a way to fix the credit markets and relieve the productive capacities of poor people who are dependent on self employment. Therefore, micro finance relents privileges by providing liquidity for a wide range of needs rather than solely by swelling income.

Finally, as we know, the economic growth comes from factors of production (land, labor, capital and entrepreneurship). Here, two elements, capital and entrepreneurship are directly related to micro finance. These constituents play a vital role in economic sustainability of developing countries by providing micro finance services over the time.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2021 Benazir Marjan

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