Banking and Microfinance: Main Functions, Mechanisms, Effects and Policy Implications

Abstract

This article discusses the important role of banks in the evolution and extension of microfinance services for the enhancement of financial inclusion of the low-income communities. Banks are the critical intermediates in providing credit, savings, insurance and other financial services to individuals and small businesses that are not connected to the regular banking system. The paper examines the roles of banks in supporting microfinance firms in terms of funding, regulatory advice, technological infrastructure, and risk management methods. It also covers the role of microfinance in poverty reduction, women empowerment, rural development and entrepreneurship generation. But such development has not stopped microfinance from suffering from problems such as expensive operations, difficulties in recovering loans, restricted outreach and regulatory limits. The study concludes that more partnerships between banks, governments and microfinance institutions are necessary to achieve sustained financial inclusion and economic development.

How to cite this article:
Basil Hans V, Kottary A G. Banking and Microfinance: Main Functions, Mechanisms, Effects and Policy Implications. J Adv Res Acct Fin Mgmt 2026; 9(2):7-14.