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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 toquantify 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 exacerbatedrecognizing the situation NGOs and governmental agencies working to eliminatepoverty . In trying to determine the root cause of poverty ,we come across that shortageof capital is major hurdle for the poor in becoming self sufficient .Initial capital ifchanneled 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 theindividual 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 standardof living. As long as development is concern we tend to check the result in terms ofGDP or any other satiable index that conveys the situation but it does not bring out theactual profiles of the ground realities.

Micro credit has established its usefulness in providing immediate substantial benefitsand 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 .Thosecountries concentrated on large-scale on governmental infrastructure and on industrialdevelopment .but the major area to be neglected in this process is the humandevelopment.

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

Through there were certain development programs and rebuilding processes thatstarted the end of the Second World War but they were not sufficient to help alleviatethe situation of the poor. Large portions of the donations were making there way fro thedevelopment projects into the hands of a few rich and powerful businessmen,industrialist, and politicians.

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By direction the limited capital available in the hands of a few rich and powerful peoplewhich spread at large have and have-nots .Dishonesty and fraud in both government aswell as private sectors caused much ambiguity about effectiveness of developmentprograms that are meant to improve the overall standard of living but fail to do so. Therehas 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 theworld stage it is the brainchild of Prof. Dr. Mohammad Yunus in 1973 with the name ofGrameen project later names it as Grameen bank in 1983 .

The key elements of a successful micro credit program making it user friendly for thepoor ,reduce risk and overheads costs and most important it should target only thepoorest of the poor. But over the years many modification have been made to the microcredit program as proposed by Prof. Dr. Mohammad Yunus to suit local needs. Otheressential necessary for successful results are weekly meetings and paymentsschedules ,group focused meeting and a minimum educational level. Poor are capableof 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 thisimplies that creditor would not required collateral while giving out loans. Communityparticipation in the whole process and administration and management of the systemreduces, the overheads costs and makes it possible for the creditors to formed smallloans.

The most significant problem faced by commercial banks that provide micro credit to themarket are high overhead costs in processing small loans to many land less and poorpeople with hundred percent risk involve and no security. But the intensive ,local andself 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 localmanagement and problems can be worked out without having to go the bank its self.This flexibilities further reduce the banks, administration cast creditors requiredguarantee of the people taking the loan from persons who are closely associated tothem .in effect this create a very strong peer pressure system among the groups toforce repayment. Thus it becomes possible to give out loans without collateral. Theother benefits of having local management is that most problems can be worked outwithout having to go the bank itself. This flexibility further reduces the banksadministrative 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 ofsmall loans, several micro-credit programs have demonstrated that they can achievevery high rates of repayment.

There are large socio-economic difference it is best to separate the groups entirely aswith women and men. If the rich and landed are allowed into the program they will exertundue influence over the poorer and gain a significant advantage over them. Goodcommunication channels at all levels are necessary for smooth operation of the

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programs involving minimum at a high level. This will not only make the program moreapproachable by the poor but also create an atmosphere that always allows every oneto 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 willit encourage the growth the new markets.

In as much as it increases income and savings ,encourage commercial production ofnon-traditional goods and organizes communities around self-development itsdevelopment will be sustainable, And the inflow of the capital to the bank increasestherefore the banks can give more loans to others which increase the out flows of thecapital therefore the bank circle go to be grower and grower and operation expand moreand 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.B

ut for the moment micro-credit seems to bedoing a superb job of fostering sustainable growth on the local level .whether thisgrowth 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 reductionand empowerment for the poor and landless peoples .wages, income and life standardgo up if its works effectively.

Written by:FAQIHA ABBAS