Exploring the Relationship Between Microfinance and Economic Growth

This report examines the relationship between microfinance, economic growth, and financial development. It begins by defining microfinance and its evolution, emphasizing its role in poverty reduction and promoting entrepreneurship. The literature review highlights the impact of microfinance on small businesses, financial intermediaries, and overall economic conditions, especially in the context of global financial crises. The research objectives include describing microfinance, critically reviewing its impact, and discussing its importance in strengthening the connection between economic growth, poverty alleviation, and financial development. The significance of the study lies in raising awareness among small companies about microfinance as a funding source and considering it as an integral part of a developing country's financial development strategy. The study focuses on fulfilling these objectives and establishing the significance of microfinance, supported by references to relevant research.

ECONOMICAL GROWTH AND FINANCIAL DEVELOPMENT: THE IMPACT OF MICROFINANCE
Research Question: Is there any relationship between the
growth in economical and financial context of a country and
microfinance?
Background
Despite sufficient history and global recognition of
microfinance, there is a mixed impact of its benefits. In the
1970s, microfinance has emerged and since then it has been
rapidly growing with the target to improve people's lives and
promote economic growth. There are limited empirical works
on the contribution of microfinance to financial development
and economic growth (Alimukhamedova, 2013). Financial
developments helps in maximizing growth of economy in the
country. Financial structure of economy matters allot and has great impact
over development of economy. Banks provide financial facilities to all sector
which is considered as non liner effects of the economy growth.
Research Objectives
 To describe the concept of microfinance and its
contributions to growth and development
 To provide a critical review of microfinance
considering its impact on development in financial
condition and growth in economy of a country?
 To discuss why microfinance is considered and an
important factor in strengthening a strong
connection between economic growth, poverty
alleviation, and financial development.
Significance along with the purpose of the study
 Aware small companies to consider microfinance as a
source of funds for their business operations
 Considering microfinance as an integral component of a
developing country's strategy in relation to financial
development
 The focus of the study: Fulfilment of objectives and
establishment of the significance of microfinance in
Literature Review
Since microfinance became a system that distributes small loans to poor people for helping them in income generation and in starting their
own small-scale businesses, it becomes an element having the ability to reduce poverty. It is significantly capable of promoting
entrepreneurship, economic and social development in the poor communities. Thus, ensures improvement in economic condition and growth
of those communities (Kach and Dahmardeh, 2017).
The global financial crisis has enlarged the importance and role of microfinance because that time trusting on the formal banking system was
shaken. Microfinance stands as a fast-moving industry that enjoys its own niche market in a country's financial sector which is different from
the formal banking system. It is fact that there are two major functions: one is excess funds from surplus units to deficit unit. That helps in
generating more income and support in improving liquidity services in the market. Financial intermediaries are continuously working to
manage funds and allotting required funds so that companies can get sufficient amount of capital to run their operations which is the biggest
contribution in economic growth.
Microfinance uses to contribute to the economic growth directly by creating value for small businesses and entrepreneurship, positive
spillovers, reducing poverty and inequality, improvements in the indicators of human development like education, nutrition, and health. It can
also be said that it provides several employment opportunities which increases disposable income of the country which not only impacts on
the financial condition of people but also direct impact on the economiccondition of the country.
It contributes to the economic growth indirectly by interacting with the financial sector to increase the access of people and small businesses
to finance, ensure integration of the financial needs of households, and formalisation of so-called ‘shadow’ informal intermediation which is
References
Kacho, A.A. and Dahmardeh, N., 2017.
The Effects of Financial Development
and Institutional Quality on Economic
Growth with the Dynamic Panel Data
Generalized Moment Method Method:
Evidence from the Organization for
Economical Cooperation and
Development Countries. International
Journal of Economics and Financial
Issues. 7(3). pp.461-467.
Ali, Q., Khan, M.T.I. and Khan, M.N.I.,
2018. Dynamics between financial
development, tourism, sanitation,
renewable energy, trade and total
reserves in 19 Asia cooperation
dialogue members. Journal of Cleaner
Production. 179. pp.114-131.