Microfinance for Micro Enterprise Development: An Inquiry for a New Paradigm

Microfinance is relatively a recent experiment against poverty alleviation in developing countries. Originally it started as a new institutional strategy to fill the gap between supply and demand for credit by the poor. The delivering of credit services to the poor either for smoothening of consumption or for the income generating activities, is called a ‘minimalist approach’ in microfinance. The major objective of this approach is to solve the problem of unemployment in general and micro enterprise development in particular by supplying financial products. But, over the years it has been realized that this approach has failed in unleashing the micro entrepreneurship among the poor. Hence, as an alternative, the microfinance sector should be redesigned in such a way that it delivers both financial and non-financial services to the poor. In this line of thought the current paper attempts to present the new paradigm for the development of micro enterprises through microfinance within the framework of ‘maximalist approach’. The empirical study of maximalist approach shows that microfinance will be a true lubricant for micro enterprise development only when the finance flows with the non-financial services, which have a greater positive impact on the livelihood of the poor.