The Role of Micro-financing in Rural Poverty Reduction in Developing Countries

Throughout the developing world, there is a desperate quest for a way out ofthe financial predicament confronting the rural poor. In most countries of thedeveloping regions, especially South Asia and Sub-Saharan Africa, the ruralpopulation forms the larger proportion of the entire population and poverty isprevalent among them. According to the International Fund for AgriculturalDevelopment (IFAD 2001), in an assessment of poverty in West and CentralAfrica, poverty in West and Central Africa is essentially a rural phenomenonwith three quarters of the population being located in rural areas. Following the theoretical methodology, this study has examined the role ofmicrofinance in developing countries and has described some measures whichcan enhance the effectiveness and efficiency of microfinance as an instrumentfor reducing rural poverty in developing countries. The thesis of this study isthat with a well planned and coordinated institutionalized microfinance systemoperating within the appropriate legal and policy framework, the rural poormay be able to get out of the chronic poverty trap that plagues their lives.By means of a review of relevant literature and a conceptual framework onpoverty in general, rural poverty in particular and microfinance services andinstitutions in the developing countries (using the cases of selected countries),the increase in popularity of microfinance as an instrument for addressing theproblem of rural poverty in most developing countries was discovered. Although there is empirical evidence that microfinance can contribute immenselyto improving the lives of the rural poor, much evidence points to thefact that the impact of microfinance on the lives of the poorest of the poor isyet to be up to the expectations of developers. Existing evidence also indicatethat microfinance services, such as savings, insurance, money transfers, entrepreneurial training and so on, which are more attractive to this class of clients, are yet to be provided. Regulation and supervision is deemed to