The Role of Microfinance in Promoting Entrepreneurship and Economic Inclusion

Abstract

This article explores the role of microfinance in promoting entrepreneurship and economic inclusion, focusing on its impact on marginalized groups such as women and low-income populations. Through a systematic literature review of studies up to early 2023, the study synthesizes evidence on how microfinance influences business creation, income generation, and poverty reduction. The findings indicate that microfinance generally supports increased entrepreneurial activity and economic empowerment, especially when combined with non-financial services like business training and financial literacy. However, the broader effects on long-term financial stability and poverty alleviation are mixed and context-dependent. The discussion emphasizes the importance of flexible loan repayment terms and integrated support to address psychosocial challenges faced by borrowers. Ultimately, the article concludes that microfinance is a vital tool for economic inclusion but achieves the greatest impact when incorporated into broader development strategies that address social, economic, and institutional factors.