Munich Personal RePEc Archive

Micro finance

Ramachandran, Ramakrishnan and Senthil Kumar, T. S. (2006): Micro finance.

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Abstract

Poor people often have just hand to mouth existence and have few reserves for major expenses such as illness, weddings, house repairs or education. They are unable to build their savings and are forced to borrow at exorbitant rates. This further adds to their burden and worsens their economic situation. Micro finance is the supply of loans, savings, and other basic financial services to the poor. The idea of micro finance was developed as a survival strategy for the poor. In India, Ela Bhatt established the Self-Employed Women's Association (SEWA) in 1974. Mohammed Yunus founded the Grameen Bank project in Bangladesh in 1976. Micro credit provides poor people with access to small loans at more manageable interest rates, and can lead to self-sufficiency and poverty alleviation. There are many models of micro credit. Saving and borrowing are really different ways of turning small amounts of money into lump sums. Saving involves building a lump sum by first accumulating smaller amounts. Borrower is taking the lump sum first and then 'saving' afterwards in the form of loan repayments Poor people have been able to reduce debt burdens and break the cycle of poverty, when the interest in low. Studies of the impact of micro finance in more than 24 countries have found dramatic improvements in household income levels. This paper looks at the various aspects of Micro finance.

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