Aims and Objectives of Microcredit for Empowerment and Poverty Alleviation

This report evaluates the aims and objectives of microcredit and its role in empowering the underprivileged and alleviating poverty. It discusses the importance of microcredit, its objectives, and how it promotes empowerment and poverty alleviation. The report also critically evaluates the primary assumptions underlying the use of microcredit.

MICROCREDIT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Importance of microcredit............................................................................................................3
Aims and objectives of Microcredit.............................................................................................4
Empowerment through microcredit.............................................................................................5
Poverty alleviation through microcredit......................................................................................6
Primary assumption underlying the use of microcredit...............................................................7
RECOMMENDATIONS.................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Microcredit is a type of small loan that is given to impoverished people who lack in
providing collateral or verifiable credit history due to unemployment (Meager, 2019). In other
words it is a type of financial service that is being provided to the low income unemployed
people who have no access to other financial services. It has been designed to support and
alleviate poverty. It is a part of micro finance that provides a wide range of services i.e. saving
accounts to the weaker section of the economy. Microcredit is a tool that is been used in
developing countries for reducing poverty. It is an instrument that helps in bridging the gaps
between the accessibility of funds among the low income groups and sustainable development. It
has hailed as an important step towards the empowerment of women.
This reports shows the importance of microcredit. It also identifies the aims and
objectives of microcredit. Also, it shows how microcredit promoted empowerment and helps in
alleviating poverty. It underlines the primary assumptions of microcredit in form of
development.
MAIN BODY
Microcredit is a form of finance which involves very small loan that are being granted to
the individuals so that they can become self employed (Akhter and Cheng, 2020). These
borrowers are from low income groups that are from less developed countries. It is also known
as microloan or microlending (Microcredit: impacts and limitations, 2018 ). In other words it can
be said it is process of lending small loans to individuals for starting a small business. The
practice of microcredit originated from Bangladesh. Where a group of women borrowed $27 so
that they can finance their own small business. The concept of microlending in build on the idea
that proficient people who are living outside the monetary and traditional banking system in
underdeveloped countries could enter into economy with the assistance of small loans.
Microcredit is offered to people who are living in barter systems that is where there is no
exchange of actual currency.
Importance of microcredit
Microcredit is plays a very crucial role in underlying nations as:
1. It does not require any collateral- Unlike any other banking system, it does not require
any guarantee. So that it can be easily available to the less income groups.

2. Helpful hand to the poor people- The purpose of microcredit is to provide to the needy
people so that they can become self employed.
3. Loan period is short- The tenure period of loan is very short in compared to any other
bank loans. So that borrowers need not to worry on a long term basis.4. It generates income- these are given only to the low income groups of the economy
which helps in generating income for the poor people smoothly in underdeveloped
countries (How microfinance is helping poor households and businesses survive and
thrive: 6 things to know, 2020)
Aims and objectives of Microcredit
The aim of microcredit is to provide the disadvantaged household against the daily life
risk by accumulating assets through consistent access to high quality affordable financial
services that helps in generating income (Félix, and Belo, 2019). The main objective of
microcredit is providing financial services which helps in encouraging employment in
impoverishes countries by obtaining the financial tools that are available. Thus, becoming self
sustainable (MICROCREDIT, 2021). There are various other objectives of microcredit which are
as follows:
1. To Provide access to funds- Mainly poor people acquire loans from informal
relationships which comes at high cost and interest rate and are unreliable. Also, banks
rejects the application of poor people because of their unemployment history, instability
and inability to provide collateral. Thus, microcredit dismisses all such requirements and
provide access to small loans.
2. To encourage self sufficiency and entrepreneurship- Underclass people also have
potential business ideas but due to inefficiency of sufficient capital need for the start up,
they cannot put these ideas into action. With the concept of microcredit it provides
enough money to the people so that their idea can get off the ground and then turning the
business into profitable. Thus resulting in self sufficiency as they can continue gaining
income from their venture.
3. To manage risks- It provides financial stability to under privileged people by crossing
from simple survival to accrued savings. Also, it helps in providing against the sudden
financial problem which could be devastated. Also, with the savings it allows
impoverished people for improved living standards with reduced illness and for

educational investments. It also provides poor people with the ability to pay for their
health care before the treatment becomes more costly, and they become solemn.
4. To empower women- Large portions of microcredit beneficiaries are made up by women.
Traditionally in underdeveloped nations women have been unable to participate in the
economic activities. Microcredit provides for active participation of women in the
economic activity by financially backing them for starting their venture. This results in
encouragement of gender equality and makes women's more active in decision making
and boost their confidence, thus enhancing their status.
5. To provide benefits to the community- in true sense, microcredit helps in reducing
poverty globally. As borrowers obtains funds, it provides them and the society with
various financial benefits as new business provides new opportunities, generates
employment. Thus, generating income in the society and improving the well being of
people by making them self sufficient.
6. To disseminate the informal moneylender that charges outrageous interest rates.
7. To reduce the dependence on grants and charity at all levels.
8. To contribute in the social economic development or rural as well as urban poor
communities by providing them financial services that helps in generating income.
Empowerment through microcredit
The concept of microcredit was highlighted in 1970's with the objective of uplifting the
low income groups of the society, thus enhancing the economic growth of the country. It plays a
vital role in empowerment of underdeveloped nations (Al-Shami and et.al., 2017). Microcredit
acts as a vaccine for anti poverty for the sections of society living in rural area. The concept of
micro loan is to focus on empowering women by granting them loans and empowering the poor
women's by making them independent. So that they can contribute in well being of heir families
directly. Thus, creating gender equality
Empowerment is a degree of self determination and autonomy in people. In other words
it means people having control and power of their own life. It means every person in an equal
citizen (Microfinance and the Mirage of Women’s Empowerment, 2018). Micro credit not only
gave men and women access to saving and credit, but it reached thousands of peoples worldwide
which helped in bringing them together in an organised groups. It played a significant role in
contributing to gender equality ans empowering women but also strengthening the civil society

and development of poor. Through its contribution in empowering women's ability in earning
income , it has led to initiation of various virtuous spirals in economic empowerment. Which has
led to increased well being of societies and also, led to political and social empowerment. It has
significantly changed the behaviour and attitudes of men in the society and has resulted in
achieving gender equality.
Majority of microcredit services focuses on women with a viewpoint of empowering
them (Mariyono, 2019) There are various underlying ways of motivation that pursue women
empowerment. Although some argue that women are the most vulnerable and poorest amongs
the underprivileged people and helping them must be a priority. However, it can be critically
analysed that a feminist point of view moreover stresses on that more access to financial services
represents a greater opportunity for empowerment. They suggests that microcredit is financial
tool that is required in fighting for the rights and independence of women..
Microcredit offers a structural method that helps in generating income and reducing the
poverty by providing them with food security and empowering women. Thus, boosting the
economic development of the society. It helps women in setting a foot forward in their
transformational empowerment which results in sustainable development. Subsequently, it has
been successful in reconstructing the social and economic configurations by providing support to
the lower income households.
Poverty alleviation through microcredit
According to Hussain (2019), poverty is defined as a condition of severe deprivation of
the basic human needs that includes shelter, health facility, food, drinking water, education. In
other word it can be said poverty means insecurity of food, inability and infertility to participate
in the economic activities. However, it can be analysed that according to urban dwellers poverty
means lack of unemployment, capital, training skills and inadequate social services. Poverty is
multi dimensional problem which needs multi faceted solutions. However, recent reports have
shown that around 150 million people of the world's poorest family has received a micro credit
that helped in alleviating poverty.
Globally attempts were made to alleviate poverty through microcredit facilities which
aims at helping the weaker sections of the society by accumulating capital to invest in
employment activities. According to Hameed (2017), poverty is not only about deprivation of
basic needs but lack of access to information. That is information regarding the market prices of

their products, health regarding information, information about the public services. Thus, they
lack the political prominence which is necessary for shaping their lives.
The majority of poor people in the underdeveloped nations lack access to the basic needs
of financial services that is essential for the living a standard life (Microfinance and the business
of poverty reduction: Critical perspectives from rural Bangladesh,2016). The weaker sections
are excluded from the opportunity of having access to financial services. They have only the
informal source which is considered unstable is left to them. However, it can be criticality
evaluated that microcredit is a vital tool that breaks the vicious cycle of poverty that is low
saving, low incomes and investments. Microcredit helped in alleviating the poverty by
generating higher savings with hogh incomes and more investments. According to author, one of
the most important element for reducing poverty is that it requires entrepreneurial skills and
efficient markets.
It can be critically evaluated that microcredit has been successful in eradicating poverty
by generating employment opportunity. Job creation opportunity have bees increased at a
moderate rate with effect of microcredit (Fiala, 2018). It has left a positive impact on the income
level and with efficient services of microcredit has resulted in institution of higher satisfaction
level of people. It has given poor unemployed people opportunities, hope and boosting their self
esteem and dignity. It is able to alleviate poverty in a long run by increasing the creditworthiness
of poor people, thus allowing banks to lend money leading to more economic activity. However
it can be critically analysed that microcredit has led to over indebtedness deals in marginalised
sections of the economy so that it can improve the standard of living of the weaker sections and
this results in over indebtedness. It gives loans without any collateral that increases the risks of
bad debts.
Also it can be critically evaluated that unproductive use of various resources such as
human and financial resources is the root cause of poverty. With the flow of micro credit in the
economy, businesses start to flourish thus increasing their productivity with efficient use of
resources which results in higher per capita income.
Thus, microcredit is a win-win situation for both the poor people and the financial
situation as it helps in increasing the consumption level by increasing the productivity, it also
helped in enhancing the per capita income which resulted in alleviating poverty by improving the
standards of lining.

Primary assumption underlying the use of microcredit
The key primary assumption of microcredit is to help the poor people specially the
women and generate income activities that help in making poor people self sufficient. It has been
evaluated that involvement of women in microcredit has resulted in high control over the
household that is better quality food (Shahriar, 2020). This has also resulted in strengthening the
economy by raising the GDP through higher per capita income.
Also, microcredit is assumed to promote women's empowerment due to the outcomes of
poverty alleviation. It has been successful in decreasing the poverty rates and thus raising the per
capita household consumption. However, it is critically analysed that it impacts on poverty
reduction which means there can be minimal empowerment. Because poverty alleviation do not
occur due to restrictions put on women regarding their development. But however there is a
positive impact on the women's empowerment as it provides more credit to women in the
financial sector.
It can be critically evaluated that assumption of microcredit that providing grants to
women's will promote empowerment in being challenged while looking at the gender
discrimination (Bateman, 2018). Microcredit often praises women to be more reliable
beneficiaries when it come to repayment of loan. But in developing countries where there are
view legal barriers for discrimination, microcredit is driven by cultural constructs and social
categorizations. However, woman may have equal access to funds but they have to face harsh
downsizing than men in acquiring these funds.
It is also assumed that with providing access to funds to women there will be
automatically empowerment. It is suggested that microcredit with promoting women
empowerment will spark a chain of social change that will lead to virtuous spiral of economic
development through social and political empowerment. It has been assumed that once the
women will have access to credit they themselves will work towards promoting empowerment
by conceptualising the feminist gender lobbies.
Furthermore, just because borrowers have access to credit, microcredit should not assume
empowerment. If it truly wants empowerment of women, then it should designs the microcredit
facilities in a way that provides incentives to workers, borrowers, husbands that encourages
women empowerment.

RECOMMENDATIONS
To promote empowerment of women it is recommended that minimal gender package
should be used in microcredit facilities. That is with flexibility of loan conditions it will cater to
the requirements and goals of women and helps in increasing their control. And thus the
additional service that addresses the gender related issues will help in reducing traditional
workload and will advocate at local and national level for women. Also, gender package will
help in increasing group participation of women in decision making that will contribute in
empowerment.
CONCLUSION
From the above report it can be concluded that microcredit is a form of small loan that is
provided to the weaker sections of the society for self sustainability. The concept of microcredit
is based on providing a financial support to the low income groups especially the women so that
they can take part in the economical activities. It can be also summarised that it plays a very
significant role in underdeveloped countries as it helps in boosting the GDP of the economy by
increasing the per capita income. It acts as a helpful hand to the poor people as it provides loan
without any collateral thus helping in generating income and increasing the living standards of
the people. Also, it can be concluded that the objective of microcredit is empower women
through providing access to funds thus increasing the participation of women in the economic
activities. It helps in alleviating poverty by creating employment opportunities which leaves a
positive impact on the income level of the poor people.

REFERENCES
Books and journals
Meager, R., 2019. Understanding the average impact of microcredit expansions: A bayesian
hierarchical analysis of seven randomized experiments. American Economic Journal: Applied
Economics. 11(1). pp.57-91.
Akhter, J. and Cheng, K., 2020. Sustainable empowerment initiatives among rural women
through microcredit borrowings in Bangladesh. Sustainability. 12(6). p.2275.
Bateman, M., Blankenburg, S. and Kozul-Wright, R. eds., 2018. The rise and fall of global
microcredit: development, debt and disillusion. Routledge.
Félix, E.G.S. and Belo, T.F., 2019. The impact of microcredit on poverty reduction in eleven
developing countries in south-east Asia. Journal of Multinational Financial Management. 52.
p.100590.
Al-Shami and et.al., 2017. Household welfare and women empowerment through microcredit
financing: Evidence from Malaysia microcredit. Journal of Human Behavior in the Social
Environment. 27(8). pp.894-910.
Mariyono, J., 2019. Microcredit and technology adoption: Sustained pathways to improve
farmers’ prosperity in Indonesia. Agricultural Finance Review.
Hussain, J., Mahmood, S. and Scott, J., 2019. Gender, microcredit and poverty alleviation in a
developing country: The case of women entrepreneurs in Pakistan. Journal of International
Development. 31(3). pp.247-270.
Hameed and et.al., 2017. Combination of microcredit and micro-training with mediating role of
formal education: A micro-enterprise success formula. Journal of Business and Social Review in
Emerging Economies. 3(2). pp.285-291.
Fiala, N., 2018. Returns to microcredit, cash grants and training for male and female
microentrepreneurs in Uganda. World Development. 105. pp.189-200.
Shahriar, A.Z.M., Unda, L.A. and Alam, Q., 2020. Gender differences in the repayment of
microcredit: The mediating role of trustworthiness. Journal of Banking & Finance. 110.
p.105685.
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Online references
Microcredit: impacts and limitations, 2018. Available through <
www.povertyactionlab.org/policy-insight/microcredit-impacts-and-limitations>
How microfinance is helping poor households and businesses survive and thrive: 6 things to
know, 2020. Available through <www.adb.org/news/features/how-microfinance-helping-poor-
households-and-businesses-survive-and-thrive-6-things>
MICROCREDIT,2021. [Online]. Available through <www.antenna.ch/en/activities/microcredit/>
Microfinance and the Mirage of Women’s Empowerment, 2018. Available through <>www.e-
ir.info/2018/10/01/microfinance-and-the-mirage-of-womens-empowerment/
Microfinance and the business of poverty reduction: Critical perspectives from rural
Bangladesh, 2016. Available through
<journals.sagepub.com/doi/full/10.1177/0018726716640865>
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