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CHAPTER 2. REVIEW OF LITERATURE
2.1. Concept of Microfinance and Microcredit programs
Microfinance programs are based on the theory of utilizing social capital to fueldevelopment, as a result these programs have emerged as a favored model of development(Taha, 2012). According to Awojobi and Bein (2010) microfinance actually the kind ofprovision of credit to low-income people by which these marginal groups of population couldable to engage in productive economic activities and get some income in hand.
Microfinance is wider concept than microcredit as it includes the provision ofmicrocredit; however, the two terms (microfinance and microcredit) are very commonly usedinterchangeably. Basically, “microfinance programs offer some non-financial support serviceswith financial support which is called microcredit to their clients for the purpose ofdeveloping entrepreneurship. These non-financial supports services include savings facilities,skill development training, motivational training, build social networking, and peer support”(Davis & Khosla, 2007). Microcredit entails not only providing the poor with financialservices but with the added capabilities needed to set up their self-employment businessprojects and maintain their sources of sustainable livelihoods instead of waiting foremployment opportunities from the government (M.M., 2010). Microcredit is given to thepoor either to help them establish their new business projects or to help small entrepreneurswho already have their business to expand it and be more sustainable (Johnson & Rogerly,1997) There are different kind of microfinance programs; however, in general microfinanceinstitutions offer credit either through joint liability group lending or individual-based lending.The individual lending model is close to the bank's model where there is a direct relationshipbetween the program and the loan holder. In the case of group lending model, borrowers aredivided into small groups and all the members of the group will be responsible together forloan repayments. In this case if one member from group does not repay the loan the other members have to contribute otherwise the whole group will be deprived future access to loansfrom the program.
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2.2. Impacts on Rural Livelihood
Microfinance is way out of poor people to improve their welfare especially to those whoare excluded from the formal financial market due to lack of collateral. This program givesfinancial support to this special group of people which gives them a means of better living(Xia et al., 2011) by attaining basic rights and generating income by entrepreneurshipdevelopment. Many developed nations besides the less developing world adopted microcreditfinancing and microcredit plus (including many other activities like skill development training,savings, creating social networking, etc. ) program and promoted as an efficient developmentintervention program (H. Wu, 2010).
2.2.1. Impact on basic rights and quality of life
Littlefield, Murduch, and Hashemi (2003) reported in their study that, in Bangladeshmalnutrition declined among microfinance recipients families with the length of membershipThey also claimed that microfinance improves expenditure capacity on food item purchasesand access more food than before. Microcredit plus approach expands borrowers' knowledgeof health and nutrition by giving some motivational training sessions which also helpsimprove household food security and children’s nutriti
