Microfinance has been increasingly acknowledged as a significant tool for poverty reduction in development. There has been an extensive debate on the success of microfinance institutions for women’s poverty reduction. A number of literature debates suggest microfinance institutions as a panacea to poverty reduction. However, argument from the literature review in this study showed that, although microfinance may have positive impacts on poverty reduction, it is unlikely to be an easy solution to poverty reduction. The extent to which microfinance institutions can be effective in poverty reduction is still questionable.
A study to examine the effects of MFIs in poverty reduction was conducted in Lira municipality using FINCA Uganda, Lira branch as a case study. The study was guided by the following research questions: To what extent is the MFIs’ credit service affecting poverty prevalence in Lira Municipality? How do MFIs’ saving services affect poverty prevalence in Lira Municipality? What are the effects of loan products on poverty reduction in Lira Municipality? Simple random and purposive sampling techniques were used to get a total of 100 study respondents. Data were collected through questionnaires, semi-structured interviews, observations and documentary reviews. Data analysis was based on descriptive statistics and presented in tables, charts, and peitentages. The following is a summary of the main findings; the survey revealed that microfinance and microfinance institutions play a crucial role in reducing poverty in the country. It was realized that microfinance and institutions despite its importance is faced with lots of challenges, some of them include loan recovery as most customers default. Another challenges faced by microfinance institutions in the country is inadequate capital to sustain and cater for the growing number of clients.
