Microfinance providers are a necessary evil because of the explanations below; Customarily, one had to apply for a loan

in order to start a business, but that proved to be an obstacle to people with poor credit. However, microfinance institutions now offer basic financial services like savings, insurance and loans to unprivileged people. Microfinance institutions provide such services to the less fortunate; it can be a commercial bank, credit union, credit cooperative, or a financial non-government organization. 1. Provide access to funding Typically, the less privileged acquire financial services such as loans through an informal relationship, which might prove to be costly and unreliable. In addition, most banks do not view the unprivileged as viable clients due to employment history or unstable credit and lack of financial security. Microfinance institutions often dismiss such requirements by providing small loans at flexible rates. 2. Encourage self-sufficiency and entrepreneurship Unprivileged people might have profitable business plans, but they lack sufficient funds to meet the start-up costs. These loans give clients enough capital to get their plans off the ground and then begin turning revenue. They can pay off their loans in time then continue to gain revenue from the business indefinitely. 3. Manage risk Microfinance can give unprivileged people enough capital stability, which gives them financial security from sudden monetary problems. Also, savings allow for improved nutrition, reduced illness, better living conditions and educational investment. 4. Empower Women Microcredit also empowers women since they are the major beneficiaries. In the past, women were not able to participate in economic activities. Microfinance institutions now provide women with the capital they require to start business projects. This gives them more confidence and allows them to participate in decision making, thereby encouraging gender equality.

Most of the worlds poor lack access to basic financial services that would help them manage their assets and generate income. This is especially true for the 900 million extremely poor people who live in rural areas of developing countries. Good management of even the smallest assets, such as livestock, can be crucial to very poor people, who live in precarious conditions, threatened by lack of income, shelter and food. To overcome poverty, they need to be able to borrow, save and invest, and to protect their families against adversity. With little income or

collateral, poor people are seldom able to obtain loans from banks and other formal financial institutions. Microfinance initiatives can play an effective role in addressing material poverty, the physical deprivation of goods, services, and the income to attain them. MFIs can help people become more economically secure. This, in turn, has a multiplier effect on people's standard of living, enhancing basic household welfare, such as food security, nutrition, shelter, sanitation, health and education services. MFIs can help prevent and extricate people from debt. Oftentimes, they liberate low-income households from moneylenders with outrageous interest rates that often reach 100% annually. Savings and credit services help people start or improve their own small businesses, providing income generation and employment for themselves and their families. Credit can be used as working capital so that clients' efforts become more productive; for example, clients can buy rice or grains in bulk at wholesale prices and resell it at retail prices or buy a refrigerator to keep produce fresh. As clients become more productive, their income increases and they are able to accumulate savings for other investments and emergencies. Savings serve as reserves for important household expenditures (such as school fees and funeral costs), and as insurance against sudden crises (such as illness, natural disaster, or theft) that can otherwise result in destitution for people already living at the poverty line. In many cases low income people want to save, and have been saving in a variety of traditional ways, ranging from kinship networks to Revolving Savings and Credit Associations (ROSCAs), but lack appropriate saving facilities that offer a combination of security of funds, liquidity, positive real return, and convenience. MFIs can build upon Africa's traditional savings ethic to enhance outreach and quality of services. It is important to keep in mind that for any financial service to have a lasting impact on poverty eradication, it must be flexible and innovative to adapt to their needs of its clients. Microfinance is one way of fighting poverty in rural areas, where most of the worlds poorest people live. It puts credit, savings, insurance and other basic financial services within the reach of poor people. Through microfinance institutions such as credit unions, financial nongovernmental organizations and even commercial banks, poor people can obtain small loans, receive money from relatives working abroad and safeguard their savings. The microfinance revolution started with the recognition that poor people needed access to loans and that they could use these funds productively. It has also changed the perception that poor people are not credit worthy. Records have shown that, instead, they are a good risk, with higher repayment rates than conventional borrowers. In some of the most successful microfinance institutions, repayment rates are as high as 98 per cent. As microfinance has evolved, there has been an increasing recognition of the importance of savings, often referred to as the the forgotten half of microfinance. During the 1990s we came to realize that there was a pattern emerging in how poor people were using the very large microfinance networks. In the networks that offered both credit and savings services, there were often as many as five savers for each borrower. While credit is important, it is only one of the many different kinds of financial services that poor people need to improve their lives.

For example, the Unit Desai of Bank Rakyat Indonesia, which has been one of the most successful providers of microfinance services in the region, counts more than 28 million savers, for only three million borrowers. The large financial cooperative networks in West Africa also have many more savers than borrowers among their members. It has been argued that savers in those institutions are usually not the poorest people. Although this is true in many institutions, evidence has shown that even the poorest people value and need access to some form of savings. What characterizes the poorest is not only their very small income but also the irregularity of this income. This can actually discourage very poor people from taking a loan that comes with the obligation of a regular repayment schedule. Conversely, data gathered from money collectors around the world show that the poorest people often use their services to save, even when it comes at a high cost demonstrating the importance that poor people attach to saving. The Microcredit Summit Campaign has the ambitious objective of reaching 100 million of the worlds poorest families by the year 2005. By the end of 2001, more than 2000 microfinance institutions were involved in the campaign, providing financial services, mostly loans, to almost 55 million individuals or groups. More than 21 million of those clients were women. There is an urgent need for microfinance institutions to improve their ability to reach the poorest families and to satisfy their growing demand for a range of financial services. This includes the safe and flexible savings services that poor people need and value. One way to meet the objectives of the Microcredit Summit Campaign is to help microfinance institutions that are legally authorized to provide simple savings services ensure that these services are available to very poor people.

Conclusion Although the amounts involved may be small, the loans, savings and insurance options that microfinance offers can give millions of rural men and women an opportunity to find their own solutions.