Strengths and Weaknesses of micro finance
The biggest strength is bringing financial services to the poorest of the poor people and making it financially sustainable by the economies of scalability. In India the National Bank for Agriculture and Rural Development (NABARD) finances more than 500 banks that lend funds to Self-help groups (SHG). SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castes and tribes. Nearly 1.4 million SHGs comprising approximately 20 million women now borrow from banks, which makes the Indian SHG-Bank Linkage model the largest microfinance program in the world. Similar programs also help in the development of an economy by giving people the chance to establish a sustainable means of income. Eventual increases in disposable income will lead to economic development and growth.
There´s not much research done on the actual effectiveness of microfinance as a tool for economic growth. Some argue that there´s too much focus on microfinance which will motivate less spending in other helping assistances like public health, welfare, and education.
Some doubts about microfinance really have that impact on poverty as the MFI’s would submit. Some microfinance institutions charge excessive interests thereby exploiting the under privileged.
Studies of microcredit programs have found that women often act as collection agents for their husbands and sons, such that the men spend the money themselves while women are saddled with the credit risk. Some borrowers have become dependent on loans for household expenditures rather than capital investments.