Promoting the development of the ‘Third World’ is a constant goal of the United Nations and other enterprises aiming to promote equality amongst humankind. However to promote development, the issue of mass poverty must first be addressed. Poverty is a constant problem, which exists in various levels and forms within our society and the world. At the current poverty threshold of $1.25 a day, the Word Bank estimates that around 25%, of the population in developing nations, live below the poverty line (United Nations, 2009). Therefore it can be suggested that 1-3 billion people live in poverty or about 20% of the global population (the World Bank Group). Poverty is an issue as the poor are deprived of their basic needs and resources needed in order to survive, such as lack of food, shelter, clothing, and clean drinking water as well as access to health care, education and employment. It is important to address these problems in order to improve the lives of this majority. The creation of credit markets in poor countries is a crucial factor for their development. Therefore poverty management strategies, such as Microfinance, have been put in place to address the issue of poverty and promote development.
Despite criticism, Microfinance has proven to be an effective tool towards promoting development in ‘third world’ countries. Microfinance is the provision of a broad range of financial services such as, deposits, loans, payment services, money transfers and insurance, to poor and low-income households and their microenterprises. It also shares the concept that low-income individuals are capable of lifting themselves out of poverty by being granted the opportunity to sell their products, pay a fair interest rate and use the extra money to improve their quality of life. The services offered by microfinance have the ability to promote economic development in poverty stricken families in the ‘third world’. Microfinance can be seen to promote the development of the third world through the alleviation of poverty, empowerment of women and increase their involvement in their economy. The mass momentum achieved by microcredit as a development strategy has cause discussion about its effectiveness in promoting development.
Microfinance has been the source of much debate, such as any poverty reduction program, on its effectiveness in its development of nations. Criticism towards microfinance’s financial ability, ability to reach the extreme poor, propensity to charge high interest rate, limited economic impact (Nazrul Islam, 2009 pg15) have all been addressed in numerous literature applications.
A number of critics argue that, despite the success stories the quantitative data collected shows some issues in the microfinance program. Sustainability is addressed with regard to microfinance as a poverty alleviation tool. Microfinance is dependent on donations by organisations, governments and agencies and therefore the income of monetary support can be...