Meenu Sharma, Meenakshi Gupta, Roop Lal Sharma and Ajay Kumar Sharma
Poverty and unemployment are the main causes of rural indebtness. The lack of loans from formal institutions leaves the poor with no other option but to borrow from local moneylenders on high rate of interest. Microfinance linked with providing financial services to the poor and this involves lower transaction costs and high degree of repayment. The present study examines the prospects and challenges of microfinance as a tool in the reduction of poverty. Result from the research indicates that inappropriate laws and regulations, tough competition, new and different variety of products, profitability, constancy and less controlling capability of micro finance institutions, insufficient capital from donor, default risk inherited from borrowers, less awareness about the micro finance program by the borrowers are the numerous challenges of microfinance. Microfinance is helpful in inclusive growth of the county by alleviating poverty and in raising the living standard of the poor by providing them financial services.