What Are the Roles of Micro Finance in the Economic Development?

by Sue-Lynn Carty ; Updated September 26, 2017

Microfinance lenders provide small loans to current and aspiring small business owners. These loans help give people who may not have the credit or the access to traditional financing the opportunity to earn a higher income and provide jobs to their local communities. The amount of microfinance loans vary by lender and can range from $25 up to $2,000.

Financial Stability

One of the largest roles that microfinance has in local economies is helping to provide low-income and poor families with the means to becoming financially stable. Small microfinance loans give people the opportunity to generate enough income to pay for necessities such as food, shelter and basic medical needs. Giving these families the opportunity for long-term financial stability can help reduce the number of people on public assistance programs, which benefits local and national economies.

Job Creation

A business that opens and operates as a result of a microfinance loan does not create jobs in as large numbers as bigger multi-national corporations. Many microfinance lenders focus on giving loans to people who live in some of the poorest areas of the world. The jobs these small businesses create are significant to these local communities where jobs are scarce. When people in these small communities are earning more income, the more likely it is that they will spend their earnings within their community. This helps stimulate local economic growth.

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Global Poverty

Microfinance supporters believe that giving low income and poor families the opportunity for long-term financially stability through these small loans helps break the cycle of poverty in the current generation and work toward ending global poverty for future generations. As more of these communities begin to grow and the local economies begin to prosper, the world’s gross domestic product begins to increase and the income gap between the wealthiest and poorest people in the world will begin to decrease.

About the Author

Sue-Lynn Carty has over five years experience as both a freelance writer and editor, and her work has appeared on the websites Work.com and LoveToKnow. Carty holds a Bachelor of Arts degree in business administration, with an emphasis on financial management, from Davenport University.

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