Question

discuss how microfinance affects households

Answer 1

Microfinance includes the delivery of financial services to the poor. The core principle under the operation of microfinance is to provide loan to group of borrowers with peer monitoring to secure loan instead of relying on physical collateral like traditional financing usually used elsewhere in the finance industry. Microfinance was also associated with the development of small businesses, which in turn, increased income and consumption of beneficiary. Below are the affects that microfinance holds on the household income:

• Microfinance leads to an increase in household income. The use of loans and deposit services can result in a diversification of income sources.
• For women, Microfinance provide greater control over resources, and access to knowledge leads to greater choices and a voice in family and community matters. Economic empowerment is accompanied by growth in self-esteem, self-confidence, and new opportunities.
• Access to financial services enables clients to build and change their mix of assets. Microfinance can be used for land acquisition, housing construction or improvements, or the purchase of animals and consumer durables. Clients can also use loans to make important investments in human assets, such as health and education.
• Microfinance clients tend to have higher levels of savings than others, which is very important for building assets.
• Under privilege people are very vulnerable and move from one crisis to another. Access to microfinance enables them to manage risk better and take advantage of opportunities.