Microfinance has become a transformative instrument for tackling poverty, fostering social inclusion and facilitating rural development, particularly among marginalized and underserved populations. This review article offers an in-depth examination of the multifaceted effects of microfinance across three essential domains: poverty reduction, social advancement and rural economic growth. It highlights how microfinance not only provides access to credit and savings for low-income households but also fosters entrepreneurial activities, improves household incomes and enhances overall living standards. Through capacity building, financial literacy, health care support, livelihood promotion and vocational training, microfinance institutions (MFIs) extend their role beyond credit providers to agents of holistic development. This review highlights the significant roles of Self-Help Groups, NGOs, NABARD and MFIs in expanding microfinance outreach and social impact. Government initiatives like Deendayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM), Micro Units Development and Refinance Agency (MUDRA), Pradhan Mantri Jan Dhan Yojana (PMJDY) and Rashtriya Mahila Kosh (RMK) further strengthen the ecosystem. Despite its benefits, microfinance faces challenges such as exclusion of the poorest, repayment pressure and limited sustainability. While not a universal remedy, it remains a vital tool for rural empowerment, inclusive growth and progress toward sustainable development. Strengthening policy, implementation and financial literacy can enhance its long-term impact in India.
Jaiganesh et al. (2025) studied this question.