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ABSTRACT
Microfinance can be a critical element of an effective poverty reduction strategy especially for developing countries. The services provided by MFIs can enable the poor to smoothen their consumption, manage their risks better, build their assets gradually, develop their businesses, enhance their income earning capacity, and enjoy an improved quality of life. This paper examined the extent of the role of MFI (DECSI, Mekelle branch) on poverty alleviation in Mekelle city. Following the information collected from both MFI's managers and their clients, it was revealed that MFI have changed the life of poor people in a positive way. MFI clients have increased their incomes, living standards and therefore expansion of their businesses. Despite these achievements it was further observed that some conditions like high interest rates, loan application process & approval, collateral, service delivery and lack of close relationship between institution management and the borrowers have been limiting factors for poor people to access the MFI services.
Key Words : Microfinance Institution, Dedebit Credit and Savings Institution, Poverty Alleviation
INTRODUCTION
Microfinance can be a critical element of an effective poverty reduction strategy. Improved access and efficient provision of savings, credit, and insurance facilities in particular can enable the poor to smoothen their consumption, manage their risks better, gradually build their asset base, develop their businesses, enhance their income earning capacity, and enjoy an improved quality of life (Pilipians, 2002). Researchers argue that the Microfinance Institutions (MFIs) are useful as they
* reduce poverty through increased income and standards of living;
* empower women;
* develop the business sector through growth potentials, and
* develop a parallel financial sector. (Hulme and Moslóey, 1996a; Hashemiet al, 1996; and Buckley, 1997).
It is generally accepted that without permanent access to institutional microfinance, most poor households would continue to rely on meager self-finance or informal sources of micro finance, this limits their ability to actively participate and benefit from development opportunities.
The proponents of credit approach (Yesuf, 1984) argue that people who live in developing countries might improve their living standards by becoming micro entrepreneurs and that financial institutions should support their initiatives with small loans. This is true because well established and sustainable micro and small enterprises in many societies contribute to the growth of...