International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

The Development Model of Microfinance Institution to Reduce Poverty in Rural Areas in East Java
Puji Handayati

Microfinance Institution (MFI) is one of the increasingly well-known strategies in addressing the poverty problem. Handling the poverty problem through Micro Finance Institution (MFI) has some logical reasons. The background can be the emergence of such an approach that is due to the failure of formal credit institution to address the poverty problem in rural areas (Huppi and Feder, 1990; Holt and Ribe 1991). Another reason is because the program that provides small loans are relatively easier to be implemented than other poverty alleviation programs such as land-reform program (Braverman and Guasch, 1989). According to the World Bank, the essence of micro-credit program is not solely on the availability of small loans through a variety of name of the institution distributors, but also the Institute of Microfinance (MFI) is a tool of development in the wide sense. This study aims to build a family empowerment model through the microfinance institution approach for underdeveloped areas in East Java in order to alleviate the poor household out of the poverty circle. Micro Finance Institution (MFI) is a non-bank institution that aims to help poor and low-income people who cannot access financial from banks.Research method in this study is an Action Research. Meanwhile, according to the objective is considered as the study development. Research variable is the formation and development of MFI. The method of data collection hasbeen done by using interviews, documentation, group discussion and observation. The population is all underdeveloped villages / districts in Blitar and Trenggalek in East Java. Meanwhile, the sampling technique is purposive sampling.The results showed that the development of MFI may be one of the effective solutions to overcome poverty reduction with the help of the role and intervention of various parties including government, non-government and community. The importance of a stable macroeconomic environment is the main support of MFI development in the future. Lack of macroeconomic stability can be an obstacle to the growth of microfinance in some countries. The good point of MFI lies in a strong commitment in empowering micro / smallenterprises, the procedure is more flexible and affordable in rural location.

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