Explain the difference betweenmicrofinance and microcredit D

Explain the difference betweenmicrofinance and microcredit. Discuss in detail the role of microfinance in help the poor to improve their living standard.

Solution

Microcredit is only one component of Microfinance. While microfinance is the process of extending financial support and aid to lower-income groups who find it difficult to secure such financial support from banks or other financial institutions, microcredit refers to extending loans to poor people using which they can set up their own business to support themselves and their family.

Microfinance has been molding the shape of finances and self-reliance of the marginalized and poor sections of society since last decade. In particular, in developing or less developed countries, getting funding for starting own entrepreneurial initiative, from banks or non-banking financial institutions, have been next to impossible. Therefore, lack of funding makes it impossible for poorer sections of society to become self-reliant and pulling themselves out of the poverty cycle. Microfinance institutions, by offering loans, aids, grants, and other forms of financial support, help such persons set up their own business which then generates income for them to run their families. Thus, extending microfinance loans and assistance not only helps the poorer people raise their own standards of living, but also enables in generating sufficient income for the borrower as to repay the aid or loan. Thus, the microfinance cycle keeps growing in size over time.