MICRO-CREDIT BANKING :A TOOL FOR POVERTY ALLEVIATION

 Poverty exist in a society where people live below minimum material and social level, it is multi
dimensional concept is present both social as well as material dimension, it is much easier to
quantify material needs that is food ,clothing ,healthcare ,sanitation, literacy rate and security.

It is growing concern in third world .over the years this problem has exacerbated
recognizing the situation NGOs and governmental agencies working to eliminate
poverty . In trying to determine the root cause of poverty ,we come across that shortage
of capital is major hurdle for the poor in becoming self sufficient .Initial capital if
channeled effectively can help reduce poverty to a greater extent.

The purpose of such capital is to jump-start a business or any work that can make the
individual self-sufficient. Micro credit being immediate and tangible benefit to the
poorest members of the society while promoting social change and empowerment too.

A micro-credit program is the first step to poverty alleviation and an improved standard
of living. As long as development is concern we tend to check the result in terms of
GDP or any other satiable index that conveys the situation but it does not bring out the
actual profiles of the ground realities.

Micro credit has established its usefulness in providing immediate substantial benefits
and long-term structural help to the poorest of the third world countries.

Not only it provides material assistance it also give social teaching.

Since the end of the Second World War and de-colonization process started .Those
countries concentrated on large-scale on governmental infrastructure and on industrial
development .but the major area to be neglected in this process is  the human
development.

In 1970s oil embargo hits them to a large extend the world comes under the financial
crises. In 1980s private development banking crises ,aid donors has poured large
quantities of aid into developing countries with relativity little concern for outcomes .with
the financial belt-tightening of the 1970s and 80s ,these donors begins to look more
closely at the outcomes of their programs

Through there were certain development programs and rebuilding processes that
started the end of the Second World War but they were not sufficient to help alleviate
the situation of the poor. Large portions of the donations were making there way fro the
development projects into the hands of a few rich and powerful businessmen,
industrialist, and politicians.
By direction the limited capital available in the hands of a few rich and powerful people
which spread at large have and have-nots .Dishonesty and fraud in both government as
well as private sectors  caused much ambiguity about effectiveness of development
programs that are meant to improve the overall standard of living but fail to do so. There
has been continues growth of newer and safer concept that are innovated and more
successful than the predecessors. It is in the context of micro credit come onto the
world stage it is the brainchild of  Prof. Dr. Mohammad Yunus in 1973 with the name of
Grameen project later names it as Grameen bank in 1983 .

The key elements of a successful micro credit program making it user friendly for the
poor ,reduce risk and overheads costs and most important it should target only the
poorest of the poor. But over the years many modification have been made to the micro
credit program as proposed by Prof. Dr. Mohammad Yunus to suit local needs. Other
essential necessary for successful results are weekly meetings and payments
schedules ,group focused meeting and a minimum educational level. Poor are  capable
of participating in the economic activity and helping themselves but training of there
people is imperative any credit system .community participation reduces the risk of non-
repayment by allowing the community to monitor the performance of borrowers this
implies that creditor would not required collateral while giving out loans. Community
participation in the whole process and administration and management of the system
reduces, the overheads costs and makes it possible for the creditors to formed small
loans.

The most significant problem faced by commercial banks that provide micro credit to the
market are high overhead costs in processing small loans to many land less and poor
people with hundred percent risk involve and no security. But the intensive ,local and
self administration keeps the cast of micro credit system low and thus it become
possible to give loans in small quantities .moreover, the system is flexible due to local
management and problems can be worked out without having to go the bank its self.
This flexibilities further reduce the banks, administration cast creditors required
guarantee of the people taking the loan from persons who are closely associated to
them .in effect this create a very strong peer pressure system among the groups to
force repayment. Thus it becomes possible to give out loans without collateral. The
other benefits of having local management is that most problems can be worked out
without having to go the bank itself. This flexibility further reduces the bank’s
administrative overheads.

Micro –credit has also proven to be a good financial risk for the banks them selves.
While there are high administrative overhands to processing such a large number of
small  loans, several micro-credit programs have demonstrated that they can achieve
very high rates of repayment.

There are large socio-economic difference it is best to separate the groups entirely as
with women and men. If the rich and landed are allowed into the program they will exert
undue influence over the poorer and gain a significant advantage over them. Good
communication channels at all levels are necessary for smooth operation of the
programs involving minimum at a high level. This will not only make the program more
approachable by the poor but also create an atmosphere that always allows every one
to benefits at a speedy rate.

The question rises will micro credit sustainability operated not on  two sides one is
inflow of capital to the bank other is out flow of the capital. And the second question will
it encourage the growth the new markets.

In as much as it increases income and savings ,encourage commercial production of

non-traditional goods and organizes communities around self-development its
development will be sustainable, And  the inflow of the capital to the bank increases
therefore the banks can give more loans to others  which increase the out flows of the
capital therefore the bank circle go to be grower and grower and operation expand more
and more. So the sustainability is good

Once every one in the local area has increased their out put ,the result may be
inflationary rather than growth producing. But for the moment micro-credit seems to be
doing a superb job of fostering sustainable growth on the local level .whether this
growth will noticeable trickle up into the economy is unclear, but fairly likely

The discussion come up this it works and largely achieves its goals of poverty reduction 
and empowerment for the poor and landless peoples .wages, income and life standard
go up if its works effectively.

Written by:FAQIHA ABBAS