By: Datin Sri Prof. Dr. Suhaiza Hanim Dato Mohamad Zailani
When the United Nations recognised financial inclusion as a key component of attaining seven of the seventeen Sustainable Development Goals (SDGs) by 2030, it validated its significance on a worldwide scale.
This is why microfinance is frequently referred to as a success story on a global scale due to its capacity to support sustainable financial outcomes and aid in the reduction of poverty.
Microfinance offers financial services, including credit, savings, deposits, insurance, and loan repayment assistance, to those who need more collateral to access traditional financial services.
Giving the impoverished access to microcredit is crucial for reducing poverty via empowerment, especially for young people and women living in rural areas.
The concept is to lend modest sums of money to villages or farmers so they may buy the supplies they require to increase their income. Accordingly, poverty might be eliminated if impoverished people had access to food and income-generating opportunities. Besides, the population’s level of food security may increase with access to land and resources.
From a business perspective, credit availability helps businesses grow by supporting the acquisition of advanced technology, hiring skilled personnel, and using innovative manufacturing techniques.
Apart from that, unrestricted access to microfinance for women would also help developing nations like Malaysia, enabling them to make substantial contributions to household well-being, family income, and further efforts to combat gender inequality.
Training is essential for giving beneficiaries the technical skills they need to run their enterprises successfully and produce positive results. For people who don’t have a reliable source of income, starting their own business is still a realistic way to develop their ideas into successful companies over time.
Meanwhile, savings habits increase investment potential and offer a safety net for money, but investing microcredit in small businesses is essential to long-term revenue generation.
Microloans should be used for company endeavours that will eventually bring in money rather than for personal consumption to prevent debt traps and guarantee value creation. Access to capital, education, and sound financial habits can enable people to escape poverty and create better futures.
A recent study indicated that microfinance significantly and favourably influences the growth of rural microenterprises.
With this, Microfinance Institutions (MFIs) serve as a platform that companies and private users may utilise to get funding for recapitalisation. It may also be a vehicle that is specially designed to fit those who are not well off.
As a result, MFIs are significant because they can support financial inclusion, provide resources to people shut out of the traditional financial system, provide training in small business management, advise on the wise use of microcredit for investments in small businesses, encourage networking among community members, and, ultimately, guarantee that these companies generate a steady stream of revenue over time.
Therefore, MFIs’ active engagement in poverty reduction is imperative, particularly in rural regions where the lack of traditional banking institutions frequently impedes economic and financial sustainability.
In light of this, Tengku Datuk Seri Zafrul Abdul Aziz, Minister of Investment, Trade, and Industry, has requested that the financial sector take a more proactive role in Malaysia’s structural transformation initiatives, particularly the recently introduced National Semiconductor Strategy and the New Industrial Master Plan 2030 (NIMP 2030).
In short, it is critical to investigate and validate the problem of poverty alleviation in the context of microfinance. Microfinance can be extremely important in increasing financial inclusion and reducing poverty.
This is because poverty is mainly caused by financial exclusion since many people cannot start small enterprises that may offer a long-term solution to their job problems and, as a result, a steady source of income because they need access to modest capital.
The author is the Director of the Ungku Aziz Centre for Development Studies, Universiti Malaya. She may be reached at shmz@um.edu.my