Question

Anaya Roy argues that, despite its problems, microfinance can be beneficial to very poor people. How does microfinance work? What problems does Roy discuss? What does she see as the benefits microfinance, even though it may not do much for economic development?

Answer 1

Microfinance is a type of banking service that is provided to low-income individuals and groups (unemployed individuals and groups are also covered). Microfinance provides financial and banking services to those groups and individuals who have no access to any type of financial services. Microfinance provides microloans to these groups and the size of microloans are very small and usually starts from as low as $50.

The problem that Roy discusses is that microfinance is not able to alleviate poverty in a systematic and tangible manner. Nor it is able to empower women and poor people. Roy argues that in case of microfinance it is not the money that is serving the mission but it is the other way round and it is the mission that is serving the money.

In terms of benefits Roy says that microfinance leads to convergence of development capital and finance capital. This in turn allows collaboration in a manner in which development projects yield investment returns. Roy also says that microfinance has led to ‘creative capitalism’ and that it has enabled merger of development capital and finance capital. This has enabled opening up and consolidation of new territories of investment.