WHAT CHALLENGES DO MICROFINANCE ORGANIZATIONS FACE IN THEIR ATTEMPTS TO SERVE THE POOR? EVALUATE THE POTENTIAL ADVANTAGES AND DISADVANTAGES OF MICROFINANCE IN IMPROVING THE STANDARD OF LIVING. Over the past 15 years, microfinance institutions (MFIs) have grown rapidly. The number of poor families receiving microcredit increased from 7.6 million in 1997 to 137.5 million in 2010. Microcredit has generated significant confidence in the rapid reduction of poverty; creating a multiplier effect leading to the eradication of poverty and hunger, universal primary education, promotion of gender equality and the empowerment of women in developing countries. It can be said that microcredit is a “win-win” opportunity, in which the poor receive the financial capital and the means to escape the poverty trap (Duflo, E et al, 2013). However, this essay will analyze the potential disadvantages as well as advantages that MFIs face in providing loans to the poor. In recent years, microfinance has come under heavy criticism from economists, claiming that MFIs have a negative impact in developing countries. Are you wondering if microfinance will be able to reduce global poverty and improve the living standards of the poor? Microfinance is the provision of low-value loans (often at below-market interest rates), savings, and other basic financial services to poor people in developing countries, who otherwise would have no other means to obtain financial assistance. The aim of microfinance is to enable people living in poverty to access financial capital to run their businesses, build assets and manage risks (CGAP, 2014). An estimated 2.5 billion people have neither a bank account nor access to semi-formal financial services such as "micro...... middle of paper ...... t of the poverty trap . MFIs have faced many challenges, the fundamental challenge being the problems of adverse selection and moral hazard, although these have been resolved through group lending. The microfinance model was very flawed, as demonstrated by its many criticisms ranging from high interest rates to multiple loans made by MFIs to borrowers. However, MFIs are being changed, with legalization and sanctions underway to prevent exploitation of the poor in the future. Microfinance continues to be successful because it provides a means of expanding access to credit to those who are deemed uncreditworthy by formal institutions and who would otherwise be forced to rely on exploitative informal institutions like pawnbrokers and pawnbrokers. The creation of MFIs in developing countries is a step towards universal access to financial services for the poor..