Globally, not excluding India, the MFI intervention model rests on two principles.

• Providing access to finance to those who do not have access to the traditional channels and
• Empowering them to leverage the accessed fund gainfully and efficiently.

This creates a stream of revenue to the beneficiary in the form of income while at the same time creating indirect employment opportunities for others.

To understand the chain let us look at the reasons that have led to the proposition that we have specified. The first question that we need to look at is the reason why by the turn of this century the policy focus shifted to micro finance as a tool to empower the people at the bottom of the pyramid or, in other words, the poor.

The poor people are caught in the vicious circle of poverty as they lack surplus resource to propel themselves out of the poverty trap. The government policy everywhere has now come to accept the fact that the poor, lacking education as they do,fear to access the traditional channel like banks even if it is at their doorsteps because of the perceived complications in obtaining loans for generating a stream of sustainable source of income.

They therefore need institutions to approach them at their doorsteps, convince them about the opportunities that they may create with loan funds and guide them in the proper utilization of the credit they are availing themselves of. This is where the unique structure of microfinance institutions comes into play. By the very structure of their functioning microfinance institutions provide them with the financial resources, guide them in the process of the fund’s investment so that from the returns of that investment they not only create earnings for the sustenance of their families but also generate that surplus to pay back the loan and grow. This process is now known as capacity creation.

Now comes the more interesting part. For every single person thus empowered through microfinance intervention a few more are benefitted creating a chain of secondary and secondary to secondary beneficiaries. In other words, a chain of indirect employments gets created from one direct beneficiary. If someone sets up a shop as the primary beneficiary, that shop will need suppliers, transport to cart supplies and so on and so forth. In the process every single indirect beneficiary in turn also keeps creating job opportunities and source of income for others down the chain.

This is why capacity creation through microfinance intervention is said to be a very important generator of opportunities to alleviate poverty.