ROLE OF MICROFINANCE IN ALLEVIATING POVERTY: A RESEARCH PAPER

Abstract [English]

Microfinance has emerged as a significant financial innovation aimed at addressing poverty and financial exclusion in developing economies. It provides small-scale financial services such as credit, savings, and insurance to low-income individuals who are typically excluded from formal banking systems. This paper examines the role of microfinance in alleviating poverty through theoretical analysis and empirical evidence.
The study finds that microfinance contributes to income generation, employment creation, consumption smoothing, and women’s empowerment. Global data indicate that microfinance institutions (MFIs) serve over 140 million clients worldwide, with a majority being women. Evidence from countries such as Bangladesh demonstrates measurable reductions in poverty over time. However, the paper also highlights key challenges, including over-indebtedness, high interest rates, and uneven distribution of benefits.
The paper concludes that microfinance plays an important but conditional role in poverty alleviation and is most effective when combined with supportive policies such as education, infrastructure development, and financial literacy.