**5. Functions of microcredit**

Microfinance/microcredit refers to financial services to the poor people and it's not limited to only credit but also provides services like money transfers and insurance. According to Murray and Boros [21] "Microfinance as a discipline has created financial products and services that are packaged in a way that enables low-income people to become clients of a banking intermediary. They enlisted the characteristics of microfinance products as follows:

*Role of Microcredit in Sustainable Rural Development DOI: http://dx.doi.org/10.5772/intechopen.102588*


Microfinance has been growing rapidly over the last two decades into an important subfield of development studies and provides a place for researchers to research the causes and consequences of poverty.

The practice of microcredit includes lending small loans to poor people who do not have sufficient funds to meet their basic needs, to create employment opportunities for them. Microcredit refers to shorter loans offered to small and medium enterprises as well as to smallholder farmers for agricultural production. Such microloans are offered by thousands of financial institutions worldwide, ranging from government to non-government financial institutions like formal banks and public institutes. The beneficiaries of these financial programs are individuals and groups. In developing countries, the basic goal of microcredit is to alleviate poverty by providing job creation opportunities to needy people. Microcredit refers to the process of taking control over the acquisition and use of credit in the present time for a certain project, business activity, in exchange for a promise to repay in the future.

#### **Commercial and Specialized Banks**

*First MicroFinance Bank*


#### **Microfinance Institutions**

*Akhuwat Islamic Microfinance*


#### **Rural Support Programs**

*National Rural Support Program*


#### **Table 3.**

*Microcredit institutions and their functions in Pakistan.*

Recent trends have shown microcredit in a broader spectrum embracing housing, consumption, education loans, and loans to meet the basic needs of poor people such as electricity, water, and sanitation that are not provided by public financial institutes. For example in Pakistan, a variety of microcredit needs are met by loans from different microfinance providers. There are commercial and Specialized Banks such as First Microfinance Bank providing loans for crop farming, purchase of livestock, construction sheds to farmers, to the enterprise for purchase of inventories and assets, and also for education, health, housing improvements. Similarly, Akhuwat Islamic microfinance which provides interest-free loans covers different credit needs of households and small enterprises. Government-supported programs such as national and provincial rural support programs provide loans to individuals and groups for agriculture, MSMEs, housing, and women empowerment (**Table 3**).

Though eligibility criteria, tenure, and purpose of loans vary from country to country, however, the target group is the same (poor people).

#### **5.1 Microcredit and family farming**

Microcredit serves as a support system for family farms. Agriculture in developing and underdeveloped regions of the world is dominated by family farms. Family farms provide above 70% 0f the global food supply [22]. Food and Agriculture organization-defined family farms as "An agricultural holding which is operated and managed by a household and where farm labor is mainly supplied by that household" [23]. According to Hazell et al. [24] a farm where the main purpose of growing staple food for the consumption of households and where the majority of the labor is supplied by household members. Family farms are different from other farms in many perspectives; freedom provided by self-employment, intergenerational continuity, residence

on farms 9owner lives on the farm or in a nearby village, etc. In short family, farming is a lifestyle and tradition [22]. In recognition of its importance for humankind and the global economy, United Nation celebrated 2014 as a year of family farming.
