An overview of the microfinance sector and its role in development

Degree Name

MS in Management

First Advisor

Aqeel Tirmizi

Abstract

This paper seeks to present an overview of the microfinance sector and its role in development. It does so by addressing the question, “What role has the microfinance approach played in the development sector?” Additionally the paper explores the origin and evolution of the microfinance sector, methodologies used in delivering services in the sector, the contributions and current trends in the microfinance sector and also the challenges and focus areas for the future of this sector. Secondary research was used to write this paper, the main sources of information were books, magazines, journals, and electronic sources such as the Internet. The chapter on ‘What is microfinance?’ seeks to show and explain the diversity of definitions ascribed to the concept and practice of microfinance. The next chapter traces the history of microfinance from its inception in the informal sector and its subsequent evolution. The methods of delivery of microfinance are dealt with in detail in the Microfinance Methodologies chapter. The methods of delivery that are discussed are village banking, solidarity groups, transformation lending and also credit unions. These broad categories were discussed because most of the other existing methodologies have been spun off from these. In looking at some of the contributions made by the microfinance sector the paper discusses amongst others, the assertion that financial services matter for the rural and urban poor and also that the myth that poor households cannot save has been shattered. Current challenges and trends in the sector are also discussed. The paper concludes with the author’s views on the trends and challenges and their implications.

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