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more initial investment than what the unemployed individual or welfare recipient can mobilize out of personal savings or liquidation of other assets (hence, the need to find an external funding source). This credit/equity gap exists at the creation of the micro-enterprise and as long as the new entrepreneur fails to establish a stable relationship with a bank. The question: “does micro-finance make sense within self-employment programs? “is therefore related to the entire process of gradual integration into the financial market and it is not a simple question of looking at the availability of micro-finance at the time of enterprise.

2.1. The need for micro-financing

According to Khandker (1998), the alleviation of poverty requires diverse measures. The most important being those, which expand the income and employment opportunities of the poor, enabling them to enhance their living standards providing the poor with access to financial services is one of the many ways to increase their income and productivity. Binswanger and Landell-Mills (1995) states that constraints in relation to suppliers that is. Private Banks excludes the poor because small transactions are unprofitable. Providing financial services to the poor and women is not easy. Many borrowers are not credit worthy and don't have profitable projectors. Thus, that the need for micro financing is an undeniable fact.

According to Yanor, Benjamin and Pipren (1997), the issue that should be raised in this context is the importance of the informal sector in Less Developed Countries (LDCs) economy and its constraint to develop by lack of credit. On top of that, Salad Vine and checkering (1991) confirmed this fact by noting that, “the informal sector” which contributed about 35% to 65% and 20% to 40% to employment and GDP in most LDCs respectively, is constrained by lack of credit. Micro-financing programs are developed to fill this gap. The rural poor in LDCs are in desperate needs of credits, microfinance programs are supposed to make available this credit needs and keep the poor to increase their living standard. Lack of saving and capital make it difficult for many poor people who want jobs in the formal and informal sectors to become self employed and to undertake productive employment generating activities, providing credit seems to be a way to generate self-employment opportunities for the poor.

In this regard, Micro-financial Institutions (MFIs) in relation to other financial intermediaries has special role and distinguishing features which are given as follows:

The primary objective of MFIs is to address the credit needs of those who are willing and ready to reduce their chronic poverty by engaging in farming and small scale production and service activities (Getahun, 2001).

Besides provisions of credit facilities, MFIs render managerial, marketing technical and administrative advise to borrowers by reaching borrowers at their place of work.(ibid)

MFIs do not require collateral to extend credit in cash or kind to peasant farmers and small entrepreneurs. Instead peer group-leading scheme, character based loans and the promise of subsequent loans is main motivations for repayment (Marguerite, 2001).

Saving requirement is introduced as a compulsory feature of lending activity and this saving requirement seems to serve as a motivator for