Research Korner: Rural Poverty Reduction

The Role of Microfinance in Rural Poverty Reduction

Research Proposal Introduction According to PANOS Institute (2002), poverty was about lack of money for current needs, lack of education, inadequate housing and clothing, unsafe living conditions, limited access to medical care, and unsatisfactory social life. These are just some of the few general examples that people living in poverty in rural areas. People struggle to survive and to live a quality life, but the responsibility is not theirs alone – it is also the responsibilities of the government leaders. To counter poverty, there are efforts conducted known as microfinancing that helps in alleviating poverty in certain areas. In this research, the background, context and theme of the study are presented. Moreover, the objectives of the study and the research statements are formulated. Here, vital concepts, questions and assumptions are stated.   Background of the Study Poverty is a global problem that is shared by every country – developed or underdeveloped. Even though the eighties and the nineties were the periods of increasing wealth because of the development of new technologies, the gap between rich and poor has grown wider, and the actual numbers of people living in poverty showed an increase (The PANOS Institute, 2002).  With this problem, the creation of micro financing is showing some help in poverty reduction. Microfinance institutions support most of the poor or low income people. Added to their portfolio is the creation of business and supporting the people that wants to establish the business. It is common to the financial institutions to subject every loan in different interest rates which is sometimes based on the amount of credit and giving the customers the specific time to pay their liabilities. The appearance of the microfinance business is popular in most of the developing countries.  In the microfinance industry, various players that can be both government and non-government institutions attempt to shape the economy. The applied influence of the financial organizations was crafted to initiate, nurture, motivate, gain the advantage and capacity, and improve the lives of the families and the small and medium type of businesses. In short, there is an increasing opportunity for the people (Rudolf, 2006). It is amazing that the developing like the India gain a significant growth due to the application of the various microfinance institutions. Accordingly, the applied strategy is the group-based lending that proposes to empower the poor women and have a mission for building the capability and confidence in the economy through the use of credit (D’Espallier, Guérin, & Mersland, 2009; Kumar, 2009). This clearly changes the traditional role of the women in the country. In group-based lending, the goal is based on the schemes that increase the social cohesiveness of the staff and to foster good cooperation and team effort. The payout process of the individual depends on the performance of the whole group and the huge temptation to reduce the individual contribution can be considered as the greatest drawback in the procedure. But the incentive schemes particularly in the savings mobilization promote the benefit.  On the other hand, the micro credit grows the popularity in the farmers and artisans that can help in their transformation as entrepreneurs. Due to the lack of technical knowledge and market intelligence the confidence of the farmers and artisans are lowered. The necessary expertise is supported by the micro credit to help them be a better entrepreneur (Kumar, 2009).   Research Objectives The proposal will focus the literature materials concerning the role of microfinance in rural poverty reduction. The research will also tackle the issues of economy’s improvement and direct implication of political instability. The first objective of the study is to identify the impact of the group-based lending and micro credit in the community. The second objective which is also connected in the first objective and that is to assess the level of financial support that might trigger the economic development. Both objectives are clearly focused in the initiatives of the financial sources and microfinance institutions.   Research Questions In accordance to the given research objectives, the following research questions should be answered: 1.      What are the common practices of the micro financing institutions in delivering the financial aid? 2.      What is the assurance of the lender and the consumers that the relationship they create is strong enough to support the aim of the individuals and small and medium businesses? 3.      What are the hints that the financial aids can contribute in the long-term goal of the country in the economic development?   Methodology This paper will be based on qualitative research method. There are factors which stand to achieve from the use of qualitative research inquisition. Basically, researchers gain not only because of increased ease of use to pre-existing viewpoint and the contextually responsive nature of methodologies such as life history, but also for the reason that qualitative research methodology helps researchers address the "singularity of values" so ubiquitous in past research efforts and understand the nature of "intercontextual work (Saunders, Lewis, & Thornhill,  2003).             References: D’Espallier, B.,  Guérin, I., & Mersland, R., 2009. Women and Repayment in Microfinance [Online] Available at: http://www.rume-rural-microfinance.org/IMG/pdf_WP_200902.pdf [Accessed 12 November 2010]. Kumar, V., 2009. Developing Credit Bureau IFC’s Group Effort It is not just Technology: Planet Finance Opportunities and Challenges, Microfinance Focus [Online] Available at: http://www.edacapitalconnect.com/pdf/Microfinance-Focus-January-2009.pdf [Accessed 12 November 2010]. PANOS Institute 2002. Reducing Poverty: Is the World Bank Strategy Working? The PANOS Institute. London, UK. Rudolf, K., 2006. Access to Employment and Income Opportunities: Approaches and Methods among Roma and Other Disadvantaged Groups [Online] Available at: http://www.osce.org/publications/odihr/2006/03/23160_798_en.pdf [Accessed 12 November 2010]. Saunders, M., Lewis, P. & Thornhill, A. 2003. Research Methods for Business Students (3rd Ed.). London: Prentice Hall.

The Role of Microfinance in Rural Poverty Reduction

Research Proposal Introduction According to PANOS Institute (2002), poverty was about lack of money for current needs, ...