MICROFINANCE AND SUSTAINABLE MICROENTREPRENEURSHIP DEVELOPMENT

Microfinance and Sustainable Microentrepreneurship Development

Nisha Bharti H.S. Shylendra

Institute of Rural Management

Anand

Gujarat

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Abstract

Looking at the growth of poverty and unemployment in developing countries, promotion of micro entrepreneurship and microenterprises is gaining importance in the present context as an important poverty alleviation tool. More than a concept ‘Sustainable micro entrepreneurship’ is a development process, based on small scale and self sustainable activities. One of the major problems identified with the development of sustainable microentrepreneurship is lack of access to credit for the microentrepreneurs. According to an estimate more than 90 percent people in developing countries lack access to financial services i.e. either savings or credit. Specially, for the micro entrepreneur who lacks any asset base for collateral, situation becomes all the more critical.

However, microenterprise usually needs small capital. Still it is difficult for the poor to manage that small amount of capital need. Due to the failure of government and market institutions to provide financial services to the poor, last decade has seen the evolution of microfinance institutions as a boon for the microentrepreneurs. For promoting ‘sustainable microentrepreneurship’ microfinance is seen as an important requirement.

This paper will make an attempt to explore the possibilities of promoting micro entrepreneurship through Microfinance Institutions.

1. INTRODUCTION

Since independence unemployment and poverty has been two major challenges before India. Several efforts in the form of self employment programmes have been made to fight these two challenges. All self employment programmes do not lead to microenterprise development. But, one of the important variant of self employment programme is microenterprise development.

In several countries micro and small enterprises constitutes a large part of the total work force. Interest in the promotion of microenterprise as an engine of growth (Pisani & Patrick, 2002) and as poverty alleviation tool (Ortiz, 2001) in the developing world is gaining importance. But one needs to understand the difference between anti poverty programme and microenterprise development programme. The objective of microenterprise is to make the poor self sufficient whereas antipoverty programmes are the means to support the poor to fight against poverty. Hence, microenterprise development programmes needs a self sufficient and sustainable approach.

Promotion of microenterprises requires financial capital as one of the critical resources. Poor are the most disadvantaged in terms of access to credit through formal sources. Both, market and government failed to provide access to credit to the poor. Lack of access to the credit has always been a major hindrance in promoting microenterprises. According to Singh (2002), “In India, the need for microfinance is higher as the demand for credit to start micro-enterprises by the poor people could not be met by the institutional initiatives of rural finance up to large scale. Due to the failure of percolation theory of social development, poor people are highly dependent on non institutional sources of credit. Growth of micro-finance in India has been in response to the failure of institutional initiatives of rural credit and exploitation attached with informal system of credit”.

This paper is an attempt to see the role of microfinance as a tool to promote sustainable microentrepreneurship. Does access to microfinance services help microenterprise in their growth and development? This paper tries to address this questions based on review of literature.

The paper starts with the objective and the rationale for the study. In the next sections it discusses the need of promoting microenterprise and tries to identify the role of microfinance in promoting microenterprise. Paper concludes with identifying the gaps in literature and suggesting some future directions of research followed by a brief conclusion.

2. OBJECTIVE OF THE PAPER

This paper is an attempt to review the available literature on the role of microfinance in promoting microenterprise with the following objectives

To explore the need and importance of promoting microenterprise.
To explore the importance of microfinance for promoting microenterprise.

3. RATIONALE OF THE STUDY

In several developing countries microenterprises are the major source of employment and livelihoods for the poor. In the last decade microfinance has been important component in microenterprise finance. It was a myth that microenterprise finance is for poor and therefore it cannot be financially viable. In the recent years many microfinance institutions (MFIs) have shown that despite their objective of serving poor they can be financially viable.

In the present context, microfinance is becoming controversial regarding its role in poverty alleviation; there is a need to define the role of microfinance.

4. CONCEPTS OF MICROFINANCE AND MICROENTERPRISE

4.1 Microenterprise

Dictionary meaning of microenterprise is “very small-scale business, esp. owner-operated with few employees” (Webster's New Millennium™ Dictionary of English, 2003-2005). The term “microenterprise” refers to a very small-scale, informally organized business activity undertaken by poor people. According to Schreiner& Woller “Microenterprises are tiny businesses; most have one employee, the owner” (Schreiner& Woller, 2003).

Microenterprise sector is very diverse in terms of its size, type, market and several other characteristics that it is difficult to define a boundary for microenterprise and define it in proper words. Probably, this is the predominant reason behind lack of official definition for microenterprise. Awasthi (2004) mentioned that it is very unfortunate that there is no official definition available for microenterprise in the country. But he considers the units employing less than six workers under the category of microenterprise.

Schreiner and Leon (2001) defined microenterprise as “Firms owned by the self-employed poor that use microfinance”. These definitions are the simplest definition for Microenterprise. According to Schreiner and Leon (2001) complex definition of microenterprise should have three components i.e. type of activity, investment limits and number of employee. Hence, for the purpose of this paper microenterprise can be defined as an informal activity run by poor with an investment limit of less than 0.1 million and employing less than five workers.

4.2 Microfinance

Asian Development bank defines Microfinance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and, their microenterprises (ADB, 2000). Ledgerwood defines microfinance as “The provision of financial services (like savings, credit, insurance and payment services) to low-income clients (the poor), including the self-employed” (Ledgerwood, 1999).

These definitions clearly indicate the relationship between microfinance and microenterprises. Microenterprises by providing income generating activities facilitates good repayment and help microfinance become sustainable. On the other hand microfinance is the specially designed financial service for the microentrepreneurs helping them in running and expanding business. Both the terms are interrelated and mutually benefit each other. Therefore there is a need to explore the relationship between these two.

5. NEED TO PROMOTE MICROENTERPRISE

In many developing countries microenterprise in its various forms are the major sources of livelihood in rural as well as urban areas. It contributes to a large proportion of employment generation in developing as well as developed countries. Microenterprises are considered to be the source of equitable distribution. Otero and Rhyne (1994) stated that “For increasing number of poor people, microenterprise is a source of income and employment where no other alternatives are available. In urban areas, a growing percentage of the working population- sometimes as high as 50 percent- is engaged in microenterprise activity. In rural settings, most families combine microenterprise with the farming and many depend on it as the main source of family income”. Otero and Rhyne, have assumed that the “new world of microenterprise” finance has the potential to do in “finance what the green revolution has done in agriculture: provide access on a massive scale to the poor” (Otero & Rhyne, 1994).

Mentioning the importance of MSEs in India, Awasthi stated that “Micro and small enterprises (MSEs) constitute an important segment of the Indian economy. Besides providing employment to nearly 25 million persons, mostly belonging to the lower rung of socio economic strata in the society, the sector helps the process of economic diversification, utilization of otherwise dormant resources, balanced regional development, production of and demand for wage goods, equitable distribution of income, and widening the base of entrepreneurial supply”(Awasthi,2004).

Describing the potential and importance of microenterprise and microfinance Rangarajan stated that “If a serious impact on the economic conditions of the rural poor has to be made, a much larger flow of credit to support a much broader production base is required. It is in this direction the movement has to travel. Self help groups (SHGs) have to graduate into promoting micro enterprises. Though’ micro enterprises are not a panacea for the complex problems and chronic unemployment and poverty in rural and urban areas, yet promotion of micro enterprises is a viable and. Effective strategy for achieving significant gains in income and assets for poor and marginalized people”(Rangarajan, 2005).

This contribution of microenterprise is not uniform across the world. It depends on several factors within the country i.e. Internal and external environment and their support to these microenterprises. Khanka (1990) rightly argued that the role of entrepreneurship in economic development varies from economy to economy and it depends on several factors like availability of material resources, industrial climate and responsiveness of the political system to the entrepreneurial function. India has a good potential to promote microenterprise because it has got enough material resources with favourable industrial climate. But there is a need to promote responsiveness of the political system to the entrepreneurial function.

In a study on the role of microfinance, entrepreneurship and sustainability in poverty alleviation in least developed countries (LDCs) Vincent (2004) concluded that microfinance and sustainable micro entrepreneurship in LDC’s have economic benefits and it affect the quality of life for the microentrepreneurs.

Schreiner (2004) has defined support for microenterprise in terms of asset-building. He believes that microenterprise programs attempt to help people to build human, financial, and social capital for the development of very small businesses that will improve people’s well-being. This “asset-development” paradigm highlights the usefulness not only of loans for financial capital and training for human capital but also savings services for financial capital and networks for social capital.

In another study in Nicaragua it was found that “MFIs like CARITAS Matagalpa are making a difference in the lives of thousands. For more than 10,000 clients of CARITAS Matagalpa, microfinance has enabled microentrepreneurs the opportunity to start, expand, and develop enterprises with the goal of enhancing their lives” (Pisani & Yoskowitz, 2005).

Other than economic benefit there are some social benefits of microenterprise and microfinance development. Singh (2002) mentioned that “The social development approach of micro-finance is based on the premise that people should earn money by investing in viable micro-enterprises. They should earn profit from their enterprises. Major share of the profit should be reinvested in enterprises for their growth. The other share of the profit should be spent on social development that is, health, education, housing, sanitation etc. By earning profit from the viable micro-enterprises, people will increase their paying ability for services delivered to them”. And finally this will lead to the development of the overall society.

CGAP (2003) reported that “One of the first things poor people all over the world do with new income from microenterprise is invest in their children’s education. Studies show that children of microfinance clients are more likely to go to school and stay in school longer. Student drop-out rates are much lower in microfinance-client households”. In an impact study of a microfinance program in Uganda, it was found that client households invest more in education than non-client households. Microenterprise revenues were important source of finance for the education of their children for more than half of the client households. Clients were significantly more likely to pay the school charges than the non-clients (Barnes et.al. 2001).

Grosh and Somolekae (1996) tried to explore the potential of developing industrial sector from microenterprise and stated that “An alternative line of thinking has focused on the informal or microenterprise sector as a possible source of industrialization. Despite the common belief that the informal sector can play such a role, very little effort among scholars has been gone into identifying specific ways through which this may happen.” There is a need for a policy support to help these microenterprises to lead to industrialization.

Indicating the role of MSEs in the economy of Kenya, Daniels concluded that MSE contributes substantially to employment (1/3^rd of total work force) and national income (13% to GDP). He further added that individual contributions of these MSEs may be small but their overall contribution in the national economy can not be ignored. The study also reported that among those MSEs which represent the sole source of income for the households 72% contributes to those who are below poverty line in urban areas and in rural areas none was above poverty line (Daniels, 1999). This fact clearly indicates the role of microenterprise for the poor.

It has been clearly discussed in the above section that microenterprise can play an important role in various aspects of social and economic development of the society. Increasing income opportunities and finally leading to empowering the poor is the basic objective of the microenterprise. Empowerment of the poor community is the way to development of society.

6. NEED OF MICROFINANCE TO PROMOTE MICROENTERPRISE

This section makes an attempt to understand the various theoretical arguments on the role of microfinance to support microenterprise development. According to Robinson (2002), about 90 percent of the people in developing countries lack access to financial services from Institutions, either for credit or savings. Specially, for poor who lack any asset base for collateral, situation becomes all the more critical. Microenterprise usually needs small capital. Still it is difficult for the poor to manage that small amount of capital. This lack of capital constrains the growth of microenterprise.

6.1 Theoretical Arguments

In literature there are two schools of thoughts available regarding the role of credit for promoting microenterprise and social and economic benefit for the poor. One school believes that credit is a constraint to the growth of microenterprise, whereas other school holds the view that credit may have negative impact on those who are very poor.

6.11 Credit as a Constraint

This school of thought considers credit as one of the major constraint to the growth of microenterprise and believes that credit has a positive role to play in larger goal of social and economic benefit (Jain 1996; Hashemi, Schuler, and Riley 1996; Otero and Rhyne 1994; Schuler, Hashemi, and Riley 1997). International Finance Corporation reported that more than 500 million poor people across the world run profitable microenterprises and often cite credit as the primary constraint to Business growth (IFC, 2002). Amartya Sen (1999) also find availability of finance as one of the important factor for development and mentioned that being financially more secure can help an entrepreneur become more successful, as it limits or reduces the various unfreedom which comes with poverty.

Eversole (2000) holds a positive view on the role of credit for micro businesses and stated that “Microcredit for businesses is usually offered in small quantities for short terms (usually three to ten months), with regular, frequent payments, solidarity- group or other accessible guarantees, and significant costs (transaction costs and interest). Microenterprise programs seem to be serving well: while impact on enterprise is difficult to measure quantitatively, the continued demand for these services suggests a positive impact”.

Credit is the single problem faced by these microentrepreneurs and providing access to credit will help these poor people to successful enterprise is not true. Nair (1998) identifies two streams of thoughts on the impact of microfinance on poor producers. First stream identifies credit as the most important input for poverty alleviation and believe that credit will go to some productive investment and that will help in reducing poverty.

Credit Productive investment Self employment Reduced poverty

This belief is based on the assumption that all credit goes to productive investments. Poor also have some consumption need and the credit not necessarily always go to productive investment. Rangarajan (2005) sees the evolution of Self Help Groups at three levels

1^st level: Households use microfinance to meet ‘survival’ requirements where small savings and loans serve as a buffer in emergencies or smoothen the consumption or even service previous debt to give itself more liquidity during lean times.
2^nd level: ‘Subsistence’ needs are met through microfinance, where a household begins to utilize microfinance to diversify its basket of income-generating activities, or to meet working capital requirements in traditional activities.
3^rd level: Households reach a stage where they can assume a higher degree of risk; microfinance would be used to invest in setting up an enterprise or facilitating entry into employment in one way or the other in order that the household becomes ‘sustainable’.

Unfortunately a large population of India falls into the category of very poor for which meeting the survival need is much more important and urgent. There are also studies which showed the cases of fungibility in the credit. In a study on 20 MFIs across different states of India it was found that “Microfinance is making a significant contribution to both the savings and borrowings of the poor in the country. The main use of microcredit is for direct investment. There is of course some fungibility, depending on household credit requirements at the time of loan disbursement, despite MFI insistence on loan use for enterprise which is the most pronounced in the Grameen model”(Sinha, 2005).

Whereas, other stream does not deny the importance of role of credit for small business but they believe that finance is only one factor among several factors which affects the quality of life. Microenterprise need much more than finance to grow.

In a study at Tanzania by Kuzilwa it was found that Credit has been instrumental to the success of the enterprise at different stages of the life cycle of these businesses. Generally, start ups of enterprises have been funded by own sources but for the expansion of businesses they needed credit. It was observed that inadequate credit either hindered or postponed the entrepreneurial activities. It has also been concluded that not very significantly but credit seemed to have contributed to the growth of enterprises as well as employment. After receiving credit, the output of the firms found to be increased by 40 percent. In this study it was emphasized that need for credit level need not be decided by the ceiling rather it’s better to go by the absorptive capacity of the firm (Kuzilwa, 2005). He also discussed his findings based on a framework.

Fig 2: Credit and Successful entrepreneurial Activities: Possible options (Kuzilwa, 2005)

It shows the importance of major microfinance services like savings and credit at various stages of life cycle of these businesses. Harper argued that only firms with the potential to graduate from micro to small and medium enterprise can be considered as entrepreneurial and businesses that are merely surviving to sustain a family and are not able to demonstrate any growth are not entrepreneurial (Harper, 1998 c.f. Kuzilwa, 2005). Kuzilwa clearly established the relationship between credit and expansion of business. This argument supports the need of credit for entrepreneurial activity.

Microenterprises often operate on short term cycle and that is why there is need of short term loan in small amount for them. In order to run their business they require sufficient amount of capital constantly and on time. Alagappan & Nagammai stated that “One of the foremost problems of any entrepreneur is finance. Availability of adequate finance at reasonable cost at the required time is the need and expectation of any entrepreneur including the owners of small scale industries” (Alagappan & Nagammai, 2003). The major problems with formal financing are inadequacy and delayed processing. Microfinance has tried to avoid these two problems but are lacking on part of their cost of lending.

In a study in LDCs, Vincent concluded that access to credit promotes a sense of entrepreneurship. Initial small loan of about $100 helped in reintegrating these entrepreneurs into formal networks and it promotes the structural and sustainable development of the communities. However, only 5% of the micro credit demand is fulfilled leaving a great potential to this sector to grow. The author is very optimistic about the role of microfinance and entrepreneurship and stated that “Despite several challenges ahead, this emerging industry, and the process of sustainable entrepreneurship combine to offer a potential alleviation solution to the poverty crisis of the 21^st century, and into a sustainable future” (Vincent,2004).

In another empirical study done on 12 MFIs in four countries of West Africa, it was found that poor access to credit, poor training, lack of trust and cooperation and aversion to risk was most common factor restricting the success of these microenterprises. They also stated that “The availability of microfinance will inevitably be an important part of the story. But it must be accessible to those who need it most, and the supporting social capital may need to be nurtured” (Roy & Wheeler, 2006).

In a similar study at Nicaragua on several microentrepreneurs through in depth interviews also revealed that access to microfinance, enhanced the chances of survival of these microentrepreneurs’ households. It was also found that income for self-employed microentrepreneurs was highly influenced by business sales volume, work experience, number of employees, and loan size (Pisani & Yoskowitz, 2005).

On the other hand Adams and Pischke (1992) argued that lack of fund was always perceived as the most important problems for the microentrepreneurs rather than product price, modern input costs, low yield etc because it is easier for donors and government to give credit than providing other support. This is the dominant reason behind launch of so many microenterprise credit programmes. They also believe that reliable access to small and short term loan is more important for poor microentrepreneurs than large and long term loans and emphasized the role of expanding services to savings for formal financial institutions by two ways

Develop financial institutions which can deal in small transactions efficiently
Innovation to assist more poor people to become credit worthy and to have long term relationship with formal financial institutions.

In this respect evolution of microfinance and MFIs has been very useful because they are able to handle small transaction efficiently as well as they establish a long term relationships with the borrower. They focus on small and short term loans rather than big and long term loans. In this way it has the potential to overcome the problems of microenterprise finance programmes launched by government.

6.12 Credit may have negative impacts for the ‘Poorest’

Other school believes that microcredit programs can have a negative impact on the populations they are meant to serve (Adams & Von Pischke 1992; Buckley1997; Rogaly 1996). This group of scholar believes that while microcredit programs have the potential to create positive impact for the poor but, in trying to achieve sustainability they fail to reach the poorest people. However, they are able to serve poor but ‘poorest of the poor’ are left out in the process (Copestake, Bhalotra, and Johnson 2001; Hulme 2000; Hulme and Mosely 1996; Mosely and Hulme 1998; Navajas et al. 2000).

Christen (1997) believes that only with partial analysis, role of credit evolve as a determinant of success of entrepreneurial activity but deep analysis of an entrepreneurial activity shows that finance does not in itself create opportunities rather it is the entrepreneurial nature of the people which lead them to see the various ways in which they can generate income (Christen, 1997 c.f. Kuzilwa, 2005). But certainly, credit plays an instrumental role in enhancing the capability of entrepreneur to utilize the available opportunity.

There are studies which counter the positive effects of microfinance on the very poor. Recent research from Sri Lanka indicates that not all microcredit programs help borrowers work their way out of poverty. Shaw (2004) finds evidence that undermines the claim that microenterprise credit is an effective solution for the alleviation of serious poverty. According to him, microfinance can work well for those who are near the poverty line and can engage in high-value enterprises. He further argued that rural microenterprises, relative to urban or semi-urban microenterprises, serve to protect current consumption levels but offer limited opportunity for exiting poverty. Furthermore, Shaw (2004) suggests that programs must be complemented by investment in social and physical infrastructure if they are to have any significant impact on rural-sector microenterprise development. It has been constantly argued that microcredit can lead the poor into a debt trap if they will not be able to generate enough income for repayments. The entrepreneurial based microfinance model of reinvigorating economically underachieving areas is being loosely replicated around the world and in the Americas (Mead & Liedholm, 1998).

In a study on NGO led microcredit programmes in several developing countries with the objective of judging the performance of these programmes and institutions on the basis of a set of four indicators i.e. Targeting the poor, increase in the assets of poor, employment generation and skill improvement and financial viability in comparison with the state-led credit-based poverty alleviation programmes and institutions, such as, the Integrated rural development project (IRDP) and Regional Rural Banks (RRBs) in India it was found that microcredit programmes have been able to bring about a marginal improvement in the beneficiaries’ income. However, the beneficiaries have not gained much by way of technological improvements, given the emphasis on ‘survival skill’. Also, in Bangladesh the practice of repayment of Grameen Bank loans by making fresh loans from moneylenders has resulted in the creation of ‘debt cycles’ (Chavan & Ramakumar, 2002). If we analyse the performance of the NGOs on the set of criteria suggested earlier it can very well be concluded that those MFIs were not able to perform better.

In another study on performance of microenterprises in Botswana Anand reported that “A majority of MSEs enjoy sound financial status in terms of a large number of MSEs lending (75%) than borrowing (10%) and amount being lent than is being borrowed exceeds by 67%” (Anand, 1994). This study counters the need of microfinance for these microenterprises. The results here clearly indicate that finance is not a constraint for these microenterprises.

6.13 Saving as an important factor

Saving is an integral component of microfinance. Since long it was a misconception that poor can not save. Emergence of microfinance has proved that poor also has the ability to save. In fact it is their saving capacity which determines their lending capacity. Stemper stated that “Savings are an important means of establishing client history which is considered when evaluating the loan applications” (Stemper, 1996). These savings can also be used as a substitute for collateral.

Buckley (1997) viewed savings as the basis to achieve financial independence and self sufficiency for the microenterprise. Sinha (2005) considers SHG as important model for the poor and stated that “The performance of the SHG model is exceptional in providing a savings-based mechanism for internal group credit to meet household needs. This mechanism also serves (though not always) to facilitate access to credit by poorer clients, who are more likely to need small amounts of credit for immediate household purposes but appear less creditworthy for larger MFI loans”.

Rotating savings and credit associations (ROSCAs) are one of the common forms of microfinance available in India supporting the need of financial services for the microentrepreneurs. It is popular because it is simple to use and provides freedom on the use of funds (Buckley, 1997). Guha and Gupta (200) concluded that microcredit institutions play an important role in creating income generation activities for the poor. These organisations also improve the loan repayment habits of the poor borrower. Some of the important features of Roscas are with respect to their group formation procedures, loan sequencing, peer monitoring, loan repayment, rate of default, etc. Roscas achieves sustainability even with low social sanctions because the gains from staying in the group outweigh the gains from additional consumption achieved through default.

Capital is a constraint in the expansion of business. Majority of these microenterprises fail to graduate from micro to small or medium enterprise due to lack of access to capital. Grosh and Somolekae (1996) considered lack of access to capital as one of the major constraint in expansion. For capital he emphasized more on the role of accumulated capital i.e. savings and stated that “The main factor that constrains entrepreneurs from accumulating capital that successive generations could use to enter business on a larger scale is the dearth of attractive saving vehicles”.

In a study in Africa it was found that principal source of finance for start up funds for any entrepreneur was self generated funds. In most cases this generation of fund was through savings. These savings were supplemented with the loan from friends and relatives. Once after establishing only entrepreneurs become integrated with the informal financial intermediaries but self generated funds played a predominant role (Buckley, 1997).

Quoting the importance of savings for microenterprise Schreiner and Woller (2003) stated that “For new microenterprises savings has some advantages over loans. Savings screen for skills and entrepreneurship where information is the least asymmetric- the self. The dilemma is that most microenterprise needs savings more than loans but microenterprise programs have no clear role to facilitate savings”. Using their own savings for start up of business reduces the risk of bankruptcy and helps them to avoid the debt trap. So it can be concluded from that savings should be an integral part of microenterprise development programmes.

6.131 Constraints in mobilizing savings

Policy is one of the major constraints for these microfinance programmes in supporting microenterprise development by restricting saving mobilization by MFIs. That causes a huge cost on the borrowed fund to these MFIs. It has also been reported that poor are more willing to save than to borrow. This keeps these MFIs in a disadvantageous position to mobilise poor people to join them.

Once the poor has demonstrated their credibility in terms of better repayment performance the scenario of microenterprise development is changing. Berger and Guilaamon (1996) stated that these microenterprises are no longer the means of a survival strategy for the poor rather they also have a potential to be an integral part of the economy. These microentrepreneurs are no longer a passive recipient of a subsidized credit but they are becoming valuable clients. So, their needs for the services need to be identified and a customer oriented services need to be provided. They demand for a comprehensive financial service and microfinance have the potential to meet their demand. But, this needs an integrated approach. Government and non government players need to come together to take a cumulative effort for providing support to these valuable clients to be converted as a self reliant and self sufficient entity.

7. GAPS IN LITERATURE

After reviewing the literature some of the prominent gaps which can be identified are

Most of the studies are being done in international context. Empirical studies on the role of microfinance for microenterprise development in Indian context are almost absent.
In the available literature much has been talked about the role of credit either positive or negative. Some scholars also tried to explore the role of savings services for the promotion of microenterprise development upto a limited extent. Almost no studies have been done on the role of other financial services like micro insurance and money transfer services in promoting microenterprise development. More importantly there is also lack of studies on the impact of providing comprehensive micro financial services on the microenterprise development.
Some organisations are very successful in promoting microenterprises whereas some are not. On the other hand there is a great diversity in terms of approaches for promoting microenterprises. There is a lack of study to understand the causes of success and failures of various approaches adopted by various organisations.
Microenterprise is always related with income promotion objective. But it also serves a more important role of protection for the poor. There is also lack of studies on the protectional aspect of the microenterprise.

8. FUTURE DIRECTIONS OF RESEARCH

After reviewing the literature on Microfinance and microenterprise I strongly feel the need of research on the comprehensive impact of microfinance on promoting microenterprise development for poor in Indian context. A comparative study of various approaches of different organisations and their reasons of success as well as failure is another important and interesting area which can be suggested for further study.

9. CONCLUSION

Microfinance is often misunderstood and is taken in very narrow sense of microcredit. However, microfinance is quite broad and involves a range of services i.e. savings, credit, insurance and money transfers. In the above discussion it is clear that microfinance has an important role to play in microenterprise development. Microenterprise does not only need credit but they also need a variety of services for their growth and development. It is also true that credit alone may not be sufficient for promoting microenterprise but lack of credit certainly hinders the development of these microenterprises at various stages of life cycle. In the presence of lack of access to credit it is difficult for any non financial support to work. The role of various microfinance services i.e. savings, insurance and money transfer in promoting sustainable microentreprenurship need to be explored and given attention.

Additionally, both microfinance as well as microenterprise has the common objective of poverty alleviation and creation of employment opportunities for the poor and therefore there is a need for both of them to come together and act for the larger objective of poverty alleviation There are also shortcomings with respect to the policy support for these microenterprises that need to be addressed for long term impact on microenterprise development.. Microenterprise development is a self reliant development strategy but it need to be supported by enabling environment and proper infrastructure support. For creation of enabling environment there is need for government and non government entities to work together. Then only these microenterprises can grow and contribute efficiently towards the larger objective of poverty alleviation.

Acknowledgement:

The scholar is thankful to MFMI for providing assistance.

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