Why is microfinance so important?

Posted by Atul Sharma on March 5th, 2019

 Microfinance is a tool which helps low-income people get access to credit which helps improve their lives. Over the years, access to microloans, savings, and insurance is an answer to economic progress as it opens a world of endless opportunities and economic independence for the socially-marginalized and women in society.

   Here are some of the reasons why microfinance is so important

1.    People are able to provide for their families – When given access to microfinance instruments such as loans and credit, most people are able to start and sustain a business. From the very first go,  they are able to provide the basic necessities to their families, thus increasing overall nutrition and health.

2.    Low-income groups have access to credit – Traditional banks do not give credit to the poor. But, microfinance institutions in India are ready to extend credit, albeit at a higher rate of interest. With access to credit, they are given a chance to dream, especially in developing countries, where most of the poor work as daily laborers.

3.    Marginalized sections of the society get a chance to earn a livelihood – As credit is extended to women and socially marginalized sections of the society, they are able to generate an income. Several members of society can work together to earn a livelihood and promote an income that not only meets daily and exigent expenditures.

4.    Families are able to provide education to their children – Financial earning means children of the poor households no longer have to work to support their parents. It also means that parents earn enough to support the education of their children. Education provides better opportunities for children in the future.

5.    Communities can develop the habit of savings – Individuals and communities as a whole start earning, they also develop a habit of savings. Women are especially prone to save money which they will use to buy insurance or add to a savings account for future use. Most microfinance in India offers them a chance to save and be better prepared for the future.


All-in-all, microfinance is a sustainable process because a small sum of money has the potential of helping a family break out of their poverty cycle. The high rate of interest and the repayment amounts are pumped back as micro-credits to the most vulnerable section of the society. Once socially marginalized become financially independent, they can help improve the overall economy of the country.

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Atul Sharma

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Atul Sharma
Joined: February 26th, 2019
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