Knowledge, Innovation and Excellence

LILONGWE UNIVERSTY OF AGRICULTURE AND NATURAL RESOURCES

(LUANAR)

Faculty of Development Studies

Department of Agribusiness Management

BUNDA CAMPUS

TO : MR PHIRI

FROM : VINCENT LUNGU

REG NO : 240100534

COURSE : INTRODUCTION TO MICROFINANCE

COURSE CODE : BBS31201

DUE DATE : 9TH APRIL 2025

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 MICROFINANCE AND SUSTANABLE DEVELOPMENT GOALS

There is a gap between the poor and those who are rich. In order to address this issue, the United
Nations (UN) has developed the Sustainable Development Goals (SDGs). Some of the goals aim
to reduce poverty and promote gender equality. The provision of financial services, including
credits, savings, insurance and money transfer services to the poor and near poor, who do not
have access to banking due to high transaction cost, can help achieve the UN’s goals.
Microfinance institution (MFIs), being organizations that specialize in saving low income and
financially underserved communities, have a potential to reduce the gap between poor and rich
people, in line with United Nations’ goals. This essay will explore the role of microfinance
institution (MFIs) in reducing economic inequality and achieving the Sustainable Development
Goals.

To begin with, microfinance has been a great deal in reducing poverty worldwide. It provides
credits, savings accounts and insurance to poor households and near poor households to improve
their lives. Many people in developing countries are denied access to banks and related services
due to their level of economy. Microfinance provides savings accounts to these kinds of people
to grow their source of living and escape poverty. These savings accounts are offered at cheap
cost that everyone can afford to access them. Studies have shown that microfinance helps in
reduction of poverty. Study by Imai, Gaiha and Thapa (2012), found that microfinance has a
positive impact on reduction of poverty by enabling low income individuals to access credit,
which in turn allows them to invest in income generating activities, change their livelihood and
their economic status. Similarly, a systematic review by the United Nations University World
Institute for Development Economics Research (UNU-WIDER) revealed that microfinance
evaluations show a positive impact on per capital income, non-land asset value, and poverty
change. When people have access to small loans, they can invest in their businesses, increase
their economic status and improve their lives.

Nonetheless, microfinance offers services in healthy related sector, including micro insurance
and financial services for healthcare. The microfinance institution (MFIs) clients are put on
medical cover most of times, for example in Malawi, FINCA Malawi and Vision Fund offer

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medical insurance or coverage to their clients which is often linked to their loan products. These
services help poor households cover medical expenses without accumulating debt. Households in
developing countries with access to microfinance are more likely to seek nutrition programs,
medication and afford preventive healthy measures, such as vaccinations (Remenyi & Quinones,
2000). Ahmed (2001) looked at the effects of microfinance on access to healthcare-seeking
impact in rural households. Ahmed et al. (2005), found that providing financial stability,
microfinance can help individuals overcome financial barriers to accessing healthcare.

Additionally, offering loans for school fees and transportation through microfinance help prevent
poor people prevent from falling further into debt. Here in Malawi secondary and tertiary
education requires more money that the poor cannot afford to cover. Poor households with
access to microfinance are therefore more likely to send their children to school rather than
withdrawing them due to financial hardship. Investing in children through education can help to
break the poverty cycle within the family level, community level and nation level, aligning with
the United Nations’ Sustainable Development Goal 1 (SDG 1).

Moreover, microfinance plays a significant role in promoting gender equality, particularly by

empowering women economically and socially. Women in many developing countries meet
problems when accessing financial services due to gender-based discrimination, lack of collateral
and cultural norms. In most cases men in developing countries like Malawi, people in remote
areas have a misconception that women are weak and passive in mind, hence the women are not
given fully and enough opportunity in the community developments. Microfinance is there
aiming to help women become more independent by providing loan to them for their business
boost. This give them more control over their lives and lead to positive changes for their
children, such as better health and education. The overall goal for microfinance is to empower
women. According to Kabeer, (2001) access to microfinance has transformative impact on
women’s ability to make decisions, generate income and gain self-confidence. Many women in
developing countries like Malawi depend more on men which leads to decline of gender
equality, microfinance provide financial services which help in opening opportunities for them to
start or expand small scale businesses for instance selling pan cake, cassava, fish, etc. In doing so
women become self-reliant and contribute to their households, thereby reducing dependence and
promoting gender equality.

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Furthermore, empowering women socially through microfinance has positive effect on gender
equality. Microfinance bring women together in microfinance programs. They become part of a
support group or cooperatives and gain responsibilities beyond traditional house-hold duties.
This helps them to gain leadership skills and also help them to create safe space to share
experiences and support each other through these social networks. In the end women are
empowered help each other to correct challenges they face due to dependence. The attitudes of
the society toward women changes and they are therefore included in community development
and decisions, hence promoting gender equality.

Finally, empowering women is also important through microfinance. When women have control
over financial resources they use to spend on special needs like health, education and food for
their families. Women borrowers has stronger effect on household welfare compered to male
borrower (Pitt & Khandker, 1998). In Malawi most men spend a lot on things which are not
important, for example some men can borrow money and use it for betting instead of investing it
in small scale businesses. The women empowerment helps to narrow the gaps and supporting
Sustainable Development Goal 5 (SDG 5), which dwell much on achieving gender equality and
empowering all women.

In conclusion, having looked into that it is clearly that microfinance institution (MFIs) can save
as a tool on poverty reduction (SDG 1) and gender equality (SDG 5). It can help in reducing gap
between the rich and the poor developing countries. Their services can also support healthcare
access, improve educational opportunities and promote gender equality by empowering
marginalized people. This will increase the development of the country at all levels.

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Reference

Ahmed, S. M. (2001). Creating capabilities through microfinance: Health-seeking behavior in

Bangladesh. Health Policy and Planning,16(3), 219-227. http://doi.org/10.1093/heapol/16.3.219

Ahmed, S. M.,Islam, A., & Mahbub, A. (2005). Health and microfinance: Experience of
Grameen Kalyan. In Microfinance and health care: Emerging partnerships. Sage Publications.

Imai, K. S., Gaiha, R., & Thapa, G. (2012). Does microfinance reduce poverty? New evidence
from household panel data. Journal of Development Studies, 48(5), 633-653.
https://doi.org/10.1080/00220388.2011.615920

Kabeer, N. (2001). Conflicts over credit: Re-evaluating the empowerment potential of loans to
women in rural Bangladesh. World Development, 29(1), 63-84. http://doi.org/10.1016/S0305-
750X(00)00081-4

Pitt, M. m., & Khandker, S.R. (1998). The impact of group-based credit programs on poor
households in Bangladesh: Does the gender of participants matter? Journal of Political
Economy, 106(5), 958-996. http:///doi.org/10.1086/250037

Remenyi, J., & Quinones, B. R. (2000). Microfinance and poverty alleviation: Case studies from
Asia and the pacific. Routledge.

United Nations University World Institute for Development Economics Research. (n.d.).
microfinance and poverty alleviation: What does the evidence show? UNU-WIDER.

United Nations. (2015). Transforming our world: The 2030 agenda for sustainable development.
http://sdg.un.org/2030agende