CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Micro-finance is often considered one of the most effective and flexible strategies in the fight against global poverty. It is sustainable and can be implemented on the massive scale necessary to respond to the urgent needs of those living far below average. Micro-finance seeks to combat poverty, especially in developing countries, through the use of small loans and community- based resources. The World Bank and several NGOs across the world are conducting innovative experiments to bring Micro-finance into the mainstream. One of the pioneers in the field is Grameen Bank of Bangladesh.

In the development paradigm, micro-finance has evolved as a need-based policy and programme to cater for the so far neglected target groups (women, poor, rural, deprived, etc). Its evolution to based on the concern of all developing countries for empowerment of the poor and alleviation of poverty. Development organizations and policy makers have included access to credit for poor people as a major aspect of many poverty alleviation programmes.

Micro-finance programmes have in the recent past become one of the more promising ways to use scarce development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro-finance programmes have gained prominence in the development field and beyond. The basic idea of micro-finance is simple: if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty.

There are many features to this seemingly simple proposition which are quite attractive to the potential target group members, government policy makers, and development practitioners. For the target group members, the most obvious benefit is that micro-finance programmes may actually succeed in enabling them to increase their income levels. Furthermore, the poor are able to access financial services which previously were exclusively available

 to the upper and middle income population. Finally, the access to credit and the opportunity to begin or to expand a micro-enterprise may be empowering to the poor, especially in comparison to other development initiatives which often treat these specific target group members as recipients.

For development practitioners, the success of micro-finance programmes is encouraging. Too often in the past, costly large scale development initiatives have failed to achieve any sustainable benefit, especially after funds have dried up.

Thus, micro-finance has become one of the most effective interventions for economic empowerment of the poor.