The Role of Microfinance in Economic Development: A Critical Review of Impact and Effectiveness

Abstract

Microfinance refers to providing financial services, including loans, savings, and insurance, to individuals or small businesses with low or moderate incomes. It is an effective tool for empowering small business owners in developing countries to overcome poverty. This review paper explores the sources of microfinance, with a focus on India, where microfinance institutions (MFIs) play a key role in supporting Micro, Small, and Medium Enterprises (MSMEs). The paper examines the significant impact of microfinance on economic development, poverty reduction, and business growth. Through this analysis, the paper highlights the importance of microfinance in fostering inclusive economic growth.