Microfinance, Poverty Alleviation and Economic Development: Theory and Practice

Abstract

Microfinance (MF) has recently been viewed to effectively contribute to poverty alleviation. This paper seeks to present an evaluation of MF with respect to economic as well as socio-ethical perspective based on secondary resources. In short the economic effects do not seem to be as encouraging as expected and the ways the concept of MF is being applied seem to have adverse socio-ethical implications. An alternative method of delivery seems to reduce or eliminate the negative effects and hence deserves serious attention. The unified value system that integrates all human and natural disciplines covers the field of economics that aims at human welfare by strategies, among other things to alleviate poverty. MF activities are expected to lead to substantial socio-economics development for the poor. The experience of Bangladesh which is the birthplace of MF as well as the largest experimentation case in the world shows positive results of MF activities. Although the outcome is not as impressive, some have serious doubts about any positive income effects. Besides the way the MF activities are being undertaken seem to raise serious socio-ethical concerns. A characteristic of the existing studies on MF is that they seem to be more or less one sided. They deal with economic implications of MF, merely its ethical and socio- cultural effects. The studies that discuss economic impacts of MF usually highlight positive income effects of MF activities. Whereas those that deal with socio-cultural effects express concern about undesirable effects of MF which have been reflected in the sentiments of the people of value orientations including a complain of religious conversion leading to social tension, unrest and conflict. An alternative example of MF activities is available, which seems to be free form the alleged undesirable ethical and socio-cultural effects. In fact the Islamic Micro financial Institutions (IMF) came into being with an objective to free MF activities from the alleged undesirable normative and socio-cultural implications. The MFIs even the largest ones including Grameen Bank and BRAC still depend on external sources of finance. The author suggested to undertake further studies on the out come of MF activities, socio-cultural effects of MF activities that hunt the religius feelings of the people, to reach the poorest of the poor, changes on the loans, remove the people from perpetual dependence on credit, external defense for finance and formation of a body to oversee the activities of the MFIS.