Micro finance
The main objective of micro finance schemes is to provide sustainable microfinance with economic development goals . If credit lending institutions can operate profitably and efficiently by targeting lending priorities for the asset poor in order to elevate the economic status of such borrowers and without dependence on any significant financial subsidies, then the micro finance scheme may be deemed to operate as a sustainable microfinance .
In general, micro finance is defined as the provision of credit on a small scale to individuals, households and other economic entities that qualify under relevant norms for lending. Micro finance institutions, as a special category of financial intermediaries, have been in operation for several decades in a few countries .Yet, there are very few formulations of formal models of organization that ensure either stability or expandability of these institutions.This is because of relative uniqueness of the institutions that depicted success or efficiency features and also because of their vulnerability to a wide variety of social, political and economic disturbances .
These institutions usually operate on a relatively small volume of lending per borrower but the multitude of borrowers remains large; often they operate on group based lending and thus economize on transaction costs through lower costs of information, contract design and enforcement in credit transactions, including loan recovery .They rely on informal and implicit contracts and draw upon local characteristics of private ordering as the main mechanism of conducting credit and loan recovery activities .These institutions function under the shadow of the domestic laws of local and national relevance but usually do not seek recourse under extensive litigation for loan recovery .
Micro finance programs typically enable the poor to acquire income generating assets by providing access to credit marketing and other inputs . Many rural development programs have tried to dovetail microfinance programs with their other activities as an incentive to members of the village community to participate in collective programs for rural development . Most microfinance programs also require the borrowers to deposit a small sum of money regularly in order to become eligible for a loan .
Micro finance programs draw attention for a number of important reasons within the context of development finance .Microfinance is often considered a bottom up approach in the sense that the critical entity is the eligible household that is entitled to credit facilities in order to elevate itself from poverty or raise its standards of living from the existing status .
The main aim of micro finance is to reduce unemployment and raise labor productivity .Micro finance acts as a tool against joblessness, since it show the ways to development of output, and hence more demand for labor. As it has no impact on workers skills or on available information, microfinance is unable to tackle frictional or mismatch unemployment. In terms of increasing productivity, microfinance is a useful tool for improving the quality of jobs, since it leads to investment in physical capital and encourages the incorporation of new technologies .On the other hand, it is of relevance in raising productivity if this is limited either by workers skills or by the quality of matching .
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